Sector financial performance:

This company, who is primarily a provider of food and service to business, education, and healthcare institutes and sport& leisure public facilities, has been grouped into hospitality food and service sector in foodservice industry.

It seems that revenue increase varies among different sectors in the past several years according to a typical company’s data. The organic revenue (excluding impacts of foreign currency) has increased by 2-3% annually primarily attributable to increase in sport& leisure and education sectors. International contribution to the increase in revenue has been significant. However, we have seen a general decrease in industry, business, and healthcare, which are usually major resource of its revenue.

The typical gross margin (including food and labor costs) is around 7-8% in 2018. The typical SG&A as percentage of sales has been around 2% and the operating margin is between 4- 5%.

The typical enterprise Price/EBI ratio: 37 (interest/EBI ratio of 52%). The required return rate of equity investors as indicated by the stock price seems similar with borrowing costs.

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Company performance:

It seems that the domestic demand for the service/products of this company has been strong and continuing to increase, especially in education and sport& leisure sector.

The first nine months of fiscal 2018 compared with the same period of 2017

Organic sales increased by about 3% (5% for 3Q) primarily due to increase in business& industry, sports and leisure and education.                                         

The first three months of fiscal 2018 compared with the same period of 2017

Organic sales increased by about 5% primarily due to increase in business& industry, sports and leisure and education.                                        

Fiscal 2017 compared with 2016

Organic sales increased by about 2% primarily due to increase in sports and leisure and international offset by decrease in healthcare.                                          

Fiscal 2016 compared with 2015

Organic sales increased by about 3% primarily due to increase in sports and leisure and education and increase in international offset by decrease in business, industry, and healthcare.                                          

Fiscal 2015 compared with 2014

Organic sales increased by about 2% primarily due to increase in education and increase in international offset by decrease in business& industry and sport& leisure.                                          

Its gross margin (including food and labor costs) has gone up by about 50 basis points to about 7% in 2018. Its G&A as percentage of sales has been basically flat at around 2% and its operating margin has thus gone up above 5% in 2018 from about 4% of 2014.

Stock price

This stock currently has an enterprise price/EBI ratio of 37. We think that its stock is being relatively fairly valued historically.