Are Café de Coral Shares a Buy After Surging 6.6% Today?

So what

Shares of Hong Kong fast-casual dining operator Café de Coral Holdings Limited (SEHK: 341) shot up by 6.6% today in Hong Kong trading.

Its stock had gained during the day but really started to pick up gains in afternoon trading and eventually closed at HK$16.42 per share. This was just below its intra-day high of HK$16.46.

This easily outpaced the Hang Seng Index’s 1.1% gain for Tuesday, after the market bounced back from a horrible start to May.

What happened

Café de Coral shares have suffered recently on news of the restrictions in Hong Kong and China following the Covid-19 outbreak.

Since the beginning of 2020, its share price has fallen by a third and bottomed out at HK$12.60 in late March.

After hitting bottom, it has staged a remarkable comeback and, after including today’s climb, it is up around 30% since then.

Most of the rebound has to do with the falling infection rate in Hong Kong as well as today’s announcement by the government that the city would start opening up again.

As a result, restaurant stocks in Hong Kong saw a surge on hopes that business could somewhat return to normal in the coming weeks.

Now what

Café de Coral has been a solid long-term performer for investors. It’s also renowned for paying a consistent dividend.

Despite seeing a 34.5% year-on-year drop in profit attributable to shareholders of the company in the six months ending 30 September 2019, Café de Coral still managed to maintain its interim dividend per share of HK$0.19.

That particular six-month window only captured half of the effects of the anti-government protests. What will be interesting for investors is to see how it performs when it releases its full-year FY 2020 earnings.

That will take into account the six months up to 31 March 2020 which included some of the most violent anti-government protests in Hong Kong as well as the Covid-19 outbreak.

Its net cash position of HK$553 million and a manageable payout ratio of 73% (as of the end of September 2019) mean the company will likely be able to maintain its dividend.