Still a must-have
Famous Brands’ results show why this is one of the must-own stocks on the JSE. The group owns over 2 600 stores, with properly integrated franchise, logistics and manufacturing operations. However, margins are slipping and the operating leverage went the wrong way with revenue up 31%, operating profit up 18%, headline earnings per share (HEPS) up 16% and the dividend up only 15%. The question is: should you worry? I don’t think so. Famous Brands is a massive operation and margins will shrink as lower-margin logistics and manufacturing grow. I also suspect that casual sit-down dining may be a lower margin business – sure, a higher spend per head but over a longer duration (versus a takeaway), and a larger outlay for the restaurant etc. The group is also grappling with consumers who are under pressure and has to be careful when pushing through price increases, which will hurt margins. Overall, Famous Brands is not just about its own brands as it also, for example, supplies the sauces for Spur. I hold and am buying more at under R120.
Margins are slipping and the operating leverage went the wrong way with revenue up 18%,31%, operating profit up headline earnings per share (HEPS) up 16% and the dividend up only 15%.