Famous Brands’ shares rise on solid performance

A Mugg and Bean restaurant in Melville. File picture: Cara Viereckl

A Mugg and Bean restaurant in Melville. File picture: Cara Viereckl

Published May 31, 2016

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Johannesburg - Famous Brands shares surged nearly 4 percent on the JSE yesterday after the group released its year-end results and confirmed plans to expand further into the UK as the rand hit its bottom line.

The company said that while South Africa remained an attractive destination for its products, it would cast its net wider to shore up its profits.

Read: Famous Brands takes over Lamberts Bay Foods

Famous Brands’ strategic advisor Kevin Hedderwick said the group had the determination, experience and energy to continue to flourish in South Africa.

The group reported an 18 percent increase in operating profit to R792 million, to February. The company headline earnings went up 16 percent to 541 cents a share and the revenue increased by 31 percent to R4.3bn.

Hedderwick said Famous Brands opened 184 new restaurants during the period, bringing the total network to 2 614.

“All of our brands performed well and we have managed to grow profits for 15 consecutive years,” Hedderwick said.

The group might be well known for its restaurants, but it has divided its business into franchising, logistics and manufacturing.

It has recently acquired 51 percent stakes in Catch, Lupa Osteria and Salsa Mexican Grill, and 100 percent of Lamberts Bay Foods.

Logistics revenue improved 31 percent to R2.9bn, while operating profit increased 12 percent to R100m.

The company’s manufacturing division grew revenue by 43 percent to R1.8bn, while the franchising business lifted revenue 11 percent to R681m and operating profit gained 7 percent to R389m.

Ian Cruickshanks, an independent analyst, said Famous Brands had a successful recipe with excellent restaurant names behind it. “My only worry is that they have opened so many restaurants in a short space, more than 100 in one year – in my opinion I think it is too much. When I look at the group’s results, I noticed that revenue was up by 31 percent and headline earnings per share increased 16 percent.

“This tells me that the cost of opening these restaurants must be escalating significantly. It will be difficult to keep cost control under check and they can be in trouble in the future if they don’t pay attention to this,” said Cruickshanks.

The group is a home of mainstream brands like Steers, Wimpy, Debonairs Pizza and Mugg & Bean, and emerging brands such as Turn ‘n Tender. The group is spread across in the rest of Africa, Middle East and the UK.

Nolwandle Mthombeni, an analyst at Mergence Investment Managers, said the industry had become increasingly competitive over the last three years as new entrants entered the market. She said the new entrants brought with the challenges of maintaining market share while growing and remaining profitable.

“The results show that Famous Brands has been able to keep its brands relevant and they continue to demand customer loyalty, as evidenced by 6.9 percent like-on-like sales growth in the franchising division,” Mthombeni said.

The board declared a dividend of 405c a share, up by 14 percent from the last period.

Famous Brands’ share price increased 3.8 percent on the JSE yesterday to close trade at R121.45.

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