Our opinion on the current state of FBR

Famous Brands (FBR) is Africa's largest branded fast-food retail franchisor with seventeen brands and 2850 restaurants. The company owns well-known South African brands like Wimpy, Debonairs Pizza and Steers. For the last two years, even before COVID-19, the company has been battling to grow in an environment where the consumer has been hammered by rising fuel costs, loadshedding, rising fuel costs, unemployment, and high indebtedness. The retail fast food industry has become increasingly cut-throat. Famous Brands had been aggressively growing its signature brands, but as yet they were not performing as well as its leading brands (Wimpy, Steers etc.). The acquisition of GBK in the UK appears to be a major blunder just before the Brexit vote. This was purchased in late 2016 for R2,3bn and Famous Brands is being forced to write off what was paid for it and has finally ceased financing it in April 2020. On 14th October 2020, Famous Brands announced that GBK was put into administration in the UK. During lockdown, most of its restaurants were not allowed to trade. The company has simplified its menus to focus on the most profitable offerings and improved its take-away and delivery options. In its results for the year to 28th February 2023 the company reported revenue up 15% and headline earnings per share (HEPS) up 37%. The company said, "With many consumers working in hybrid and remote jobs, mealtimes have become more flexible and spread across the day. Evening sit-down trade has not recovered to pre-pandemic levels, and consumers tend to make earlier bookings. The advent of appealing, user-friendly apps and changing consumer expectations have unlocked food delivery as a sustainable category". In a trading statement for the six months to 31st August 2023 the company estimated that HEPS would be between a gain of 3% and a loss of 17% compared with the previous period. The share has been recovering since the impact of COVID-19 in March 2020. We believe it will continue to perform well.