SINGAPORE - Punters were raking in the dough from BreadTalk shares this week, taking profit after the firm's stock hit a record high earlier this month.
The bakery chain began a yeasty rally late last month after Thai food and beverage player Minor International (Mint) lifted its stake in the firm to 8.85 per cent on March 22, spurring speculation that a privatisation bid was in the offing.
The talk intensified when Mint further raised its stake to 10 per cent on April 3.
Maybank Kim Eng noted in a research report on Thursday: "In a world of record low interest rates against a backdrop of macro uncertainties, acquirers are taking charge of their own fate by buying out good assets."
From March 22, BreadTalk shares surged 37 per cent over seven sessions to reach a record high of $1.165 on April 3.
Since then, however, the stock has lost steam. By Monday, it had fallen 17.5 per cent to 96 cents.
It regained some ground over the next couple of days, rising to $1.02 by Wednesday, but has since slipped back to 98.5 cents on Friday.
At least part of the share's slip and slide can be attributed to a "sell" call issued by OCBC Investment Research analyst Lim Siyi, who said in a report on Monday that "a takeover at this juncture is an unlikely scenario".
He added that the stake acquisition was likely just a strategic move by Mint to enlarge its portfolio. "In addition, BreadTalk had previously expressed interest in expanding into Thailand, so this stake acquisition may possibly open up strategic tie-ups in Thailand," he noted.
Also, BreadTalk chairman George Quek, along with his wife, holds about 53 per cent of the firm, and this is a stumbling block for any general offer, he added.
"In addition, BreadTalk is far from being a polished product so any acquisition will encompass significant risks."
For instance, Mr Lim noted, the company's operating margins have narrowed owing to ongoing expansion, and there are some concerns over future margin stability when BreadTalk does approach a steady state.
"From our review of its operations, BreadTalk is still at least five years away from its stated goals," Mr Lim added.
"Its management also has to show that it is able to deliver healthier growth to its bottom line beyond just impressive double-digit revenue growth."
Failure to do so will lead to a perception that BreadTalk is operationally deficient, and this will dilute its appeal to suitors or result in an unfavourable valuation.
The share price has run ahead of fundamentals, Mr Lim said, adding that the firm would be fairly valued at 77 cents a share.
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