Famous Brands results suggest it is still tough out there

Famous Brands released results for the six months to end August, revenue increased 12 percent to 1.013 billion ZAR, with operating profits up 8 percent to 184 million ZAR. Fairly muted I guess is what you could say, no trade in the stock as of yet (at the time of writing this), the bids look a little weak though. This translates to headline earnings per share of 125 cents, which is 9 percent better than last time and an interim dividend of 80 cents, up 14 percent from the corresponding period last year. Hey, remember the other day, last week when they were excited about finally having opened their 2000th store, that is worth celebrating too.

Famous Brands refers to "the resilience of its business model and strength of its brands." Margins were compressed, but management seemed happy enough. There is one thing worth pointing out, about beef prices and what they have done about it: "....increased beef stocks bought forward to secure current input prices, which are expected to continue to escalate." Escalate is a bad word.

Strong brand, no, great and well loved brands here locally. Franchising makes most of the profits (around two thirds of total profits), but the supply chain is where most of the revenue is, nearly three quarters of total revenues. But you have to have all the divisions in order to maintain the quality, because the consumers of their goods have to know that if they are in a city travelling the country (or small town) that the Steers, or Wimpy is going to be the same everywhere. So of course you have to have control over it all.

Liquidity is always a problem when wanting to own these shares, 40 thousand or so shares trade a day, which at just below 45 ZAR (there have been a few trades now) is not that great for a company with a market cap of 4.35 billion ZAR (as at close last evening). Compare this liquidity to much smaller operator Taste holdings, which has a market cap of 249 million ZAR. The stock trades around 77 thousand shares a day. OK, still small, but there seems to be liquidity.

Of course Taste recently announced a potential acquisition of The Fish & Chips company which has over 160 outlets (in their own words) "targeting the lower LSM consumer." Check out the menu -> The Fish and Chips company menu. Cheap!! Good luck and well done to that team at Taste, many gave them a rev, I remember it well. Like the sector, I like Taste and Famous Brands, we do like MacDonald's a lot in New York, and to a lesser extent Yum Brands.