Jollibee shares drop after news of Coffee Bean acquisition

Jollibee Foods Corporation announced one of its most ambitious acquisitions to date, acquiring The Coffee Bean and Tea Leaf for $350 million. However, investors were not keen on gobbling up its stocks.

Jollibee’s stock price went down by 8% on Wednesday, July 24, and closed at P251, its lowest since October 2018.

The company’s shares were put on a trading halt until 2:30 pm after the announcement of the deal.

Philstocks research analyst Claire Alviar said Jollibee’s shares were already oversold, as investors looked into the financials of the companies that Jollibee acquired.

Alviar noted that Jollibee’s net income fell by 14.7% to P1.5 billion in the 1st quarter of 2019, after the company consolidated burger chain Smashburger into its financial statements in 2018.

Without Smashburger, Jollibee’s operating income would have grown by 9% for the quarter.

Meanwhile, Regina Capital managing director Luis Limlingan explained that Jollibee’s latest acquisition, Coffee Bean, had lackluster earnings in the past two years. It recorded losses of $21 million in 2018 amid a meager revenue growth of only 4.1% year-on-year.

“Even though it usually takes around 3 years for Jollibee to turn its acquired businesses around, it does add challenge considering that the firm is still in the midst of rationalizing Smashburger’s operations,” Limlingan said.

The acquisition of Coffee Bean also delayed the planned initial public offering of Highlands Coffee, the other coffee business of Jollibee. It was supposed to be this July.

“Let’s see what Jollibee can do to Coffee Bean if it can turn it to profits. Their management has good track record,” Alviar said.

She added that the support level of the stock is now at P240, noting that buying the stock now is only for those looking at the long term.

The Philippine Stock Exchange index also ended the trading day in the red, 1.09% down to 8,161. Most of the counters, except for services (up by 0.3%), incurred losses.

A total of 125 companies declined, 73 advanced, while 57 were unchanged on Wednesday. Total foreign buying was over P3 billion, while foreign selling stood at almost P3.6 billion. – by Ralf Rivas|

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