Waka waka, eh eh

Yesterday Famous Brands released their full year results, and had a results presentation that I got to attend. I was hoping to have a King Steer Burger as part of the snacks followed by a Tashas/Wakaberry desert, but that was not the case. The company had strong results with some mile stones over the year. The first and most important as an investor is that they achieved an operating margin of over 20% for the first time (from 18.5%), they also have passed the R10 billion market cap number and their debt to equity ratio is negative, meaning that they are debt free.


As an investor you would like to see a bit of debt in a growth business like Famous Brands because you would be backing management to put the borrowed money to work giving returns that are higher than the interest on them. The management hinted at an expansion into what they called the "related leisure" sector, which would include hospitality, beverages, food retail and fast moving consumer goods. The move would make sense because they can leverage off their logistics and manufacturing networks, which currently supply's their franchisers. The move would also add some debt to the books that could be paid down relatively quickly due to the strong cash flow of the company.


At the moment they have 2378 stores of which 1935 are in South Africa, 347 in the Rest of Africa, 94 in the UK and 2 in India. An interesting stat is the operating margins for the different regions, South Africa is just shy of 20%, but the "Rest of Africa" category has a margins of 46.1% and the UK has only 14%. As markets become more developed there is more competition and margins drop, it is interesting to see where South Africa's fast food market fits in compared to others. As far as growth is concerned the rest of Africa still has vast amount of opportunity and as you can see, if they get into the right regions there is high margin business up for grabs.


Onto the numbers revenue was up 12% to R2.83 billion, headline earnings up 20% to 406c and the dividend is up 20% to 300c, the numbers are all moving in the right direction. Like on like sales were up 6.7%, with South Africa only up 5.8% which is in line with inflation. The company said that they found that the number of consumers purchasing were up, but the frequency of purchases were down. Which points to a growing middle class but people who have less disposable income to spend. The "recession proof" brand Tashas had like-on-like growth of 20%, as the company says "Those who have money continue to spend it"


This is still one of my favourite companies not only because of our growing middle class but also due to societies shift towards easy and fast on the go food. The prospects for the company look good and with them looking to expand into the leisure sector, we should see further strong growth from them.