Jollibee seen close to beating prepandemic earnings this year

Homegrown fast-food giant Jollibee Foods Corp. (JFC) is likely to deliver close to prepandemic earnings this year as the reopening of the economy will fuel a stronger recovery, a research from stock brokerage First Metro Securities Brokerage Corp. said.

JFC has resumed its aggressive global store expansion, recently bringing its flagship brand Jollibee to new markets like Scotland and Malaysia.

This year, JFC is likely to attain about P7.25 billion in net profit, compared with the P5.94 billion bottom line posted last year, according to a recent research note written by First Metro Sec head of equity research Mark Angeles and analyst Estella Dhel Villamiel.

First Metro Sec’s 2022 profit forecast for JFC is close to the P7.3 billion earnings delivered by the food retailing giant in 2019, the last full year before the COVID-19 pandemic erupted. The firm’s profit forecast is also much higher than the P5.99-billion profit expected by market consensus, based on forecasts culled by Bloomberg.

The brokerage house has a “buy” rating on JFC with a target price of P289 per share. As of last week, JFC closed at P236 per share, giving it a market capitalization of P273.3 billion.

The target price implies that investors are willing to pay 44 times projected earnings this year, which First Metro Sec said would be “justifiable in view of speedy recovery in earnings.”

Turnaround

The attributable net profit of P5.94 billion delivered by JFC last year marked a turnaround from the net loss of P11.51 billion incurred in 2020 when the pandemic bludgeoned its global operations. This was likewise 91 percent better than the P3.11 billion net income expected by Bloomberg market consensus.

“JFC’s full-year performance affirms our view that reopening winners can mount a stronger and faster rebound as mobility restrictions are eased. Moreover, gains from positive operating leverage are low-hanging fruit for JFC in view of its successful business transformation efforts and profit improvements from Smashburger and Coffee Bean & Tea Leaf,” First Metro Sec said.

The brokerage house noted that JFC’s fourth quarter earnings had been stronger than expected.

While there is still much recovery to be made in terms of revenue performance—which hit only 85.5 percent of 2019 levels—the brokerage house said margin expansion, owing to positive operating leverage, enabled JFC to post its highest quarterly cash flow since the fourth quarter of 2018. Earnings before interest and taxes (Ebit) amounted to P2.5 billion, bringing JFC’s full-year Ebit to to P6.3 billion, or 97.5 percent of pre-COVID levels.

As such, First Metro Sec upgraded its Ebit forecast for JFC for this year and next year.

“We reiterate our view that stronger sales growth and material cost cuts should allow for speedier expansion of margins and lay down a clear path to JFC’s recovery, in view of powerful incremental flow-through that drives a positive operating leverage,” the research note said.

Meanwhile, JFC reported a long line of people at Princes Street, Edinburgh, in the cold morning of Feb. 24 as Jollibee opened the doors of its first restaurant in Scotland. This follows a large-scale European expansion plan, including store openings in London, England; Cardiff in Wales; and Madrid, Spain, last year and Rome, Italy, in 2020.

The brand will then quickly open its second Scotland location in Glasgow on March 25. INQ