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Foolish Face-Off: Breadtalk vs. Panera Bread

Duel The latest instalment of the Foolish Face-Off will hopefully be a treat for foodies as we eat-up the numbers from Singapore-based bakery-outlet owner Breadtalk (SGX: 5DA) and American bakery-café operator Panera Bread (NASDAQ: PNRA) to see who comes up tops in a bake-off.

The Foolish Face-off is a series where we pit companies with similar operations against each other in simple contests. It’s not always easy to make comparisons between companies (though we sometimes think that having to make a choice between chili or black-pepper crab can be an even tougher task!) so we’re here to offer a Foolish hand.

Introduction

Breadtalk the company started life when its first Breadtalk outlet opened at Bugis Junction in Singapore back in 2000. In the 13 years since, the company has now expanded to more than 13 countries around Asia and the Middle East (including Mainland China, Thailand, Philippines and Malaysia), running 746 outlets across different concepts.

Besides the eponymous Breadtalk outlets, which mainly sell unique breads, buns and cakes, the company also runs food atriums and full-service restaurants. For example, the award winning Chinese-cuisine restaurant brand Din Tai Fung is run by the company in countries like Singapore and Thailand.

While Breadtalk’s an international company that’s looking at China for growth (almost half the company’s stores are located in China alone), Panera Bread can be said to be a domestic growth story based in the USA.

Panera Bread runs more than 1,700 bakery-cafés in USA and Canada, of which less than 1% of its store count is in the latter. While there’s no doubt about the company’s aim to make profits, there’s also something altruistic about Panera Bread.  For instance, it has opened a number of cafés where customers are not required to pay for anything they order, in the spirit of wanting to feed the needy.

To differentiate itself from competitors, Panera also strives to make its bakery-cafés a third-place between work and home where customers can hang out, relax, and linger by serving up free Wi-Fi and a cushy environment.

Breadtalk Panera Bread
Market Cap S$248.7m US$5.0b
Last 12 month Sales S$483.3m US$2.25b

Round 1: Valuation

In investing, it’s important to know which company’s offered at a cheaper price in the market. For that, we’ll turn to the metrics: Price-to-Earnings (PE), Price-to-Sales (PS) and Dividend Yield.

Breadtalk Panera Bread
PE 20.4 26.7
PS 0.5 2.2
Dividend Yield 1.5% Nil
Share Price S$0.885 US$172
*Dividend Yield figures are based on total dividends paid in the last completed financial year. The rest are based on last 12 month’s financial figures.

Looking at those metrics, it does seem that Breadtalk trumps Panera Bread here with its lower PE, lower PS and the mere presence of a dividend (Panera Bread does not pay a dividend). For that, Round 1 has to go to Breadtalk!

Winner: Breadtalk

Round 2: Profitability

A company’s value is heavily influenced by the profits it can rake in over the long-term. And so, as investors, we’ll want to keep an eye on a company’s profitability.

In the second round of this friendly bout, we’ll be looking at Breadtalk and Panera Bread’s profit margins in addition to their Return on Equity. The former tells us how efficient they are at turning each dollar of sale into profit, while the latter measures how efficient both bakers are at generating a profit from each dollar of shareholder capital.

Breadtalk Panera Bread
Gross Margins 53.7% 23.4%
Net Margins 3.0% 8.3%
Return on Equity 14.9% 22.7%
*Based on last 12 months’ financial figures

We see that Panera Bread has a far superior Net Margin as well as Return on Equity and so, Round 2 belongs to the American baker.

Winner: Panera Bread

Round 3: Growth

While it’s important to make a profit, it’s also important for a company to grow those profits. As a company grows its sales and profit over time, its intrinsic value – and by extension its share price – increases.

Meanwhile, companies that pay-out growing dividends would mean shareholders are getting a fatter paycheck each year.

Breadtalk Panera Bread
Revenue Growth CAGR 20.5% 13.2%
Earnings Per Share Growth CAGR 11.6% 27.6%
Dividend Growth CAGR 9.1% Nil
*Financial figures are based on the companies’ last 5 completed financial years.**CAGR = Compounded Annual Growth Rate

Here, we see Panera Bread having very strong earnings-per-share-growth of 27.6% per year but it loses out to Breadtalk in the Face-off’s final round due to slower revenue growth and, as mentioned earlier, the lack of a dividend.

Winner: Breadtalk

Foolish Bottom Line

Final Score: 2-1 to Breadtalk!

So, from a cursory glance of some financial figures, it seems that Singapore-based Breadtalk wears the taller and fancier baker’s hat compared to Panera Bread. The former has been able to exhibit stronger growth and its shares command a lesser premium in the market.

But, it pays for us to note that a definitive conclusion can’t be reached from this exercise as we’ve not taken a look at other important aspects of a business. These include the companies’ balance sheet, cash flow situation and same-store sales history (a very important metric in the F&B-retail industry), among others.

If you’re interested to learn more about other businesses, stay tuned for more Face-offs!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Panera Bread.