SFI: To buy or not to buy?
The name on everyone's lips at the moment is SFI Group, the pubs and bars group that owns the Slug and Lettuce and Bar Med brands.
The stock has been punted in several share watch columns in the national press, all declaring it an obvious buy. The group recently reported a six per cent rise in like-for-like sales for the 19 weeks to October 13.
It has delivered an average compound growth of 50 per cent. This fantastic track record was most recently highlighted in a 44 per cent rise in overall sales. SFI has focused on the £2.5bn branded bar market, which now accounts for 89 per cent of the group's total business.
Analyst Teather & Greenwood rates the stock a "strong buy". Going forward it plans to test its Fiesta Havana themed bar concept in London after a successful initial trial in Liverpool.
Yet the shares have lost a third of their value since June and not everyone is a fan. Analysts at WestLB Panmure issued a negative brokers note when the stock was at 260p.
They have now moved their position to neutral but pubs sector analyst Douglas Jack urged caution. "There are two areas for concern," he said. "Firstly the balance sheet is over-stretched and it needs to re-finance - it has £125m of debt yet its assets only amount to £100m.
"Secondly the company is pushing for unsustainable growth. This means that if we do have a downturn in the UK, SFI will be hit hard - it represents an above average risk."
The growth rate probably needs boiling down. The challenge for the SFI management is to do this without impacting the share price.
