27 May, 2013 16:56

Famous Brands Annual Results to Feb 2013?

Famous Brands claimed in its results announcement that its performance had been “impressive”. Revenue was up 17%, headlines earnings a share (heps) rose by 22%, and the dividend was boosted by 25%? This food business includes several well-known franchises such as Steers, Whimpy, Mugg & Bean, Debonair’s Pizza and tashas. It operates in South Africa, and beyond, and also manufactures many inputs for its restaurants. It is now making its own mozzarella cheese in Coega – not sure what the Italians think of that? It is planning new tashas outlets in the plush Cape Town Waterfront and probably in Sandton’s Mandela Square, and it is clearly determined to grow aggressively in Africa. So what do our experts think of the group’s performance?

Expert views

1. Chris Gilmour of ABSA Investments

This was another outstanding result from SA’s biggest quick service restaurant chain. Although the local economic background didn’t help, a host of new acquisitions and a strong contribution from the small but growing rest-of-Africa segment helped to produce this strong result. Two new acquisitions – Bread basket and Turn ‘n Tender – kick in from the new financial year. While it is getting tougher to make meaningful acquisitions due to a) Famous Brands’ large size and b) the difficulty in finding good new targets, the group will undoubtedly manage to find something to which they can add value in the coming year, and beyond. The Wimpy chain in the UK continues to under-perform, but it is not proving to be a distraction to management – and the group plans to open its first Steers outlet in Clapham in London very shortly. African operations should continue to grow strongly into the future. This is an exceptionally well-managed company at all levels and, while expensive, deserves its premium rating on the JSE.

2. Independent Analyst Ian Cruickshanks

With heps up 22% on the year, on revenue up 17%, this points to improved operating efficiencies. The company continues the strong growth trend of the past 8 years, as they remain close to their franchisees and their customers. Centralised manufacturing and marketing have led to improved operating efficiencies. Location is vital to this business and they are getting it right as they remain strategically well- positioned for SA’s fast growing urbanisation. Outlets continue to offer value for money compared to competitors. They are already operating in 15 countries in Africa, and this is a high growth area.

3. Ron Klipin from SA Stockbrokers

Logistics, manufacturing and franchising are three profit streams which compliment and supplement each other. They are planning African expansion to tie-up with Shoprite and other developers in Africa, and this has major potential for expansion. They go top to bottom – with offerings for all income groups. I expect the revamp of Mandela square has potential for a major tashas outlet, as well as in the Cape Town Waterfront.

4. Lavan Gopaul from 28e.co.za

A further 55 stores across Africa and entry into India and the UK consolidates a commitment to international expansion. Completion of the acquisition of Fego, Europa, Bread Basket and Turn n Tender affirms their wide network of food brands for the wealthier income groups. The Coega cheese joint-venture helps build a vertical supply chain. Famous Brands is a success story – of growth by international expansion, acquisition, organic growth and right-sizing vertical inputs such as cheese. The fast food giant looks set to deliver healthy earnings growth in the next report.

Conclusion

This is an impressive business, cutting throats skilfully in a cutthroat industry. Hedderwick told analysts that it has been a year of extreme margin pressure in a very competitive environment. Famous Brands has exceeded its 4-year vision of doubling the size of its business. While the opening of a new outlet in Dubai in a few months time is impressive, the Rest of Africa is the real expansion zone. It is happy to trade in just 15 African countries and plans a narrow focus in terms of geography and in terms of brand portfolio. The Rest of Africa now accounts for 7% of its business, and it grew 44.7% in the Rest of Africa in the past year. The emergence of US fast food chain Burger King might be a concern. “We are not petrified,” said Hedderwick. “We welcome competition. If the burger category grows, we will grow with it.”

Tweet of the Day

DMoose Allain (@MooseAllain): Papers just released from MI5 under the statute of limitations have revealed there was a mole in Wind In The Willows.


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