Good Spirits Hospitality Limited

GSH Details

Good Spirits Hospitality Limited (NZX: GSH) is an investment company, focused on the Hospitality sector. It is also one of the leading specialty hospitality operators in New Zealand. The company was formed in December 2011 and acquired the business of The Better Bar Company group in November 2014.

Result Performance – For the first half ended 31 December 2020 – (H1FY21)

• Revenue Decreased by 21.9% YoY: The revenue of the company for the interim period fell by 21.9% YoY to $11.5 million mainly on account of the decrease in revenue from Auckland bars by 23.9% YoY to $10.41 million as the revenue flow was interrupted by the COVID-19 infections which heavily impacted the hospitality industry.
• Hamilton Revenue Increased 3.6% YoY: The company’s bars at Hamilton location reported a rise in revenue of 3.6% YoY to $1.1 million.
• Unaudited Net Loss After Tax at $121k: The company reported an unaudited net loss after tax of $121k (H1FY20: $292k profit) led by the closure of venues for eight weeks during H1FY21 and restricted trading throughout the period.
• Labour Cost Pressure and Other Factors: Another factor for net loss was elevated labour cost due to the rise in New Zealand’s minimum wage, followed by non-cash IFRS 16 - Depreciation of right-of-use assets of $677k, and non-cash IFRS 16 - Interest on leases of $596k.

Key Data (Source: Company Reports)

Risk:

The risk management approach of the company focuses on the management of the following material business risks: operating risks, financial risks, organisational risks, and corporate risks. Further, due to Covid-19 restrictions on travel and businesses which are not part of essential commodities and services, ongoing uncertainties concerning the vaccinations,  rising cases of COVID-19 variants  are the factors that are impacting the operations of the company.

Outlook:

The company plans to fully redevelop the Viaduct Venue into a new and vibrant concept complementing its existing portfolio. This investment is expected to cement its position as the leading hospitality provider in the Viaduct. Further, this venue is expected to provide material operational synergies by leveraging the current two outlets, Danny Doolan’s and O’Hagan’s, and creating three pillars for GSH in the precinct. The securing of this prime site further increases the company’s portfolio of high performing community, and its strategy of growth through acquisitions and other opportunities.

Stock Recommendation:

The company continues to pursue multiple opportunities regarding both new and existing venues. In this area, the company is in confidential discussions and negotiations with several parties.

The stock has witnessed a fall of ~7.49% in 3 months and, over the last 6 months, it has decreased by ~10.8%. The stock has a 52-week low and high of $0.0560 and $0.1000, respectively.

Driven by the strong management, recovery in consumer sentiments, current trading levels, and positive long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.0730 per share (New Zealand Time: 1:24 PM (GMT +12)) on 13^th July 2021.

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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