Fast food’s deflationary boom
Consumer Discretionary
Fast food has been a true nightmare in China in the past five years. First the pandemic then the inflation and then an odd period when menu prices were falling due to competitive pressures but costs were still inflating. However, these winds eventually swing around. Costs are now falling due to lower food prices. Add in increased efficiencies and more automation and margins are already recovering. The share price doesn’t seem to have noticed yet. David Scott's preferred play is Haidilao International, describing it as an "outstanding investment opportunity". However, he thinks the Asian industry as a whole now looks interesting. The average ROE of the 21 companies examined is 13% while the average EV/Sales is 1.8x. Other stocks flagged include MK Restaurants and Cafe de Coral.
Edition: 190
- 12 July, 2024