UK chain’s woes hit SA parent firm

IN JANUARY Gourmet Burger Kitchen ran a promotion giving away free lunches to celebrate Blue Monday in the UK. A few months later, it gave away free cheeseburgers to all London Marathon runners – there were more than 40 000.

In June, it gave away another 4 300 of its Big Mouth burgers nationwide, again for free

As promotional activity seemingly becomes a survival tactic for the burger franchise, its South African parent, Famous Brands, lost about R1.3billion of its market capitalisation last week. Investors were spooked by a dire trading update which warned that headline earnings per share may fall as much as 63%, mainly as a result of its UK struggles.

Since Tuesday, the group, which owns Steers and Debonairs, has had its share price lose almost 30%.

While Famous Brands head honcho Darren Hele said GBK had a promotional strategy that was planned at the start of every year and was reviewed during the year in line with market conditions, it’s clear that this year the market has not been in its favour.

As a result of this week’s update, Hele said a small number of shareholders had regrettably decided to exit. “We retain the support of major long-standing institutional shareholders, who appreciate the group’s investment case”.

Imtiaz Suliman, portfolio manager at Sentio Capital, is one of the departed shareholders. He feels the GBK purchase should never have happened. Having paid a full price of R2.1billion for GBK, the margin for error was small, he said.

But Hele said: “GBK is not a poor buy and short-term headwinds do not make this a bad business.”

He said he expected GBK to show growth in the next financial year. However, for the group’s local operations, he said the current trading conditions equalled the worst in management’s recollection.

“While the local business is in very good shape, it operates in a subdued economic environment. Every effort is being made to capitalise on the limited consumer discretionary spend available …” — DDC