Famous Brands trading update

17-AUG-17

Yesterday we received a performance update from Famous Brands which certainly disappointed the market. The share closed down 7.9%. System wide sales grew 7% in South Africa for the six month period. If you exclude new stores, sales only increased 1.8%. 52 restaurants were opened in South Africa for the period.

GBK, the recently acquired UK based burger joint had sales increase by 12.1%. If you strip out the 6 new stores they have opened, like for like sales actually declined 2.6%.

You can see why the market is concerned. The company suspend their dividend to make the big GBK purchase. Post Brexit, the UK economy has been stagnant. Locally, we are also under pressure. Famous Brands have been very resilient in a tough economy but are now seeing the pressures reflecting in the numbers. The share price was expecting more, hence the rerating.

When you buy into a consumer facing company like this, you need to realise there will be good and bad cycles. The company is extremely well managed in a sector that will grow throughout the cycles over the coming decades. They should come out of this stronger and more efficient. We continue to hold the stock and ride the wave. Expect more details when the results come out.