CDGL (coffee business) reported a modest 2QFY17 with strong performance in the vending business and exports getting offset by weak performance in the core café segment. Underlying operational trends remain weak on the café side with modest growth in café rollout, low single digit SSSG and slower-than-expected growth in ASPD. We have cut our Ebitda estimates for CDGL by 8-11% over FY2017-19 and revised our target price downwards to R250 (from R290 earlier); retain add.
CDGL reported a 22% y-o-y growth in net operating revenue (including other operating income), which stood at R3.5 billion, driven by 11% growth in gross retail operations and 220%+ growth in exports; net operating revenue came in 7% above our expectations of R3.3 billion. However, contraction in GMs (due to weaker mix), increase in operating costs, especially rentals (up 25% y-o-y) and staff costs (up 24% y-o-y), led to a 5% y-o-y decline in Ebitda, which stood at R545 million (9% below our estimate). Profit before tax was, however, flattish driven by higher other income and lower interest expenses while PAT grew modestly driven by lower effective tax.
CDEL net operating income (including other operating income) was up 11% to R7.2 billion, driven largely by strong growth in the coffee segment, which grew 22% y-o-y; hospitality business (up 16% y-o-y) also did well.