Why Has BreadTalk Group Limited’s Stock Price Jumped By 21% In The Last 3 Months?

BreadTalk Group Limited (SGX: 5DA) may not be a very large company given its market capitalisation of ‘just’ S$443 million. But, it is likely to be a very well-known company in Singapore, given the fact that its food & beverage outlets are scattered all across the island.

The company has three main business divisions, namely, Bakery, Restaurant, and Food Atrium. Under these segments include food & beverage outlet brands such as BreadTalk (the company’s namesake bakery), Toastbox (a food & beverage concept offering simple Singaporean fare), Din Tai Fung (a restaurant focusing on Chinese cuisine) and more. Right now, the company has 855 bakery outlets, 57 food atriums, and 32 restaurants across Asia.

Over the last three months, the company’s stock price has climbed by 21%. What may have caused this?

Reasons for a surge

There can be many reasons behind a stock’s price increase.

But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related. The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with BreadTalk

In BreadTalk’s case, I believe it’s the former at work. Here are some important numbers from the company’s income statements for the first quarters of 2017 and 2016:

Source: BreadTalk’s 2017 first quarter earnings

We can see that the company’s net profit had surged by 337.2% from S$2.4 million to S$10.7 million, despite a 4.5% year-on-year decline in revenue. During the reporting quarter, BreadTalk’s profit margin had seen significant improvement.

After a period of rapid growth in the last few years, BreadTalk’s latest strategy of consolidating its stores (closing or improving non-performing stores), improving productivity, and managing its costs, is yielding some positive results.

Going forward, the company is expected to be more cautious in opening stores and to continue working on streamlining its operations and costs.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.