Still a must-have

Finweek English Edition - - MARKETPLACE -

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%.

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