Despite making six acquisition over the course of 2016, Africa’s largest food retailing brand Famous Brand has seen its share price dip by 28 percent since the start of 2017.
Data from the South African Bourse showed that since the beginning of the 2017 trading year, the share price of Famous Brands has lost over R30 in value, sliding from R135 in January to R119 this week.
A number of reasons, according to Ashburton Investments fund manager Jason Forssman, could be responsible for this persistent decline. One of which is a decline in earnings per share.
“If you exclude the acquisition costs related to the R2.1 billion acquisition of UK-based burger chain, Gourmet Burger Kitchen (GBK), earnings a share would have shown a decline of 4.1 percent. This is in contrast to multiple years of double-digit earnings growth which endeared the company to South African shareholders,” he told the Business Report South Africa.
Beyond earnings, the brand’s shift in strategy from a complete franchise model to wholly-owned food chains and restaurants put a strain on its profitability and subsequently weakened investor confidence.
The harsh economic environment experienced over the past year has also forced consumers to prioritize spending, which has impacted negatively on demand. “For starters, the consumer has been under severe strain with less disposable income to spend at restaurants,” said Shmuel Simpson, an analyst at 36ONE Asset Management.
They both reckon, however, that the lingering decline in share price would not pose any significant threat to the brand in the long term as it is a well-run business with a reputable management team.
Famous Brands is Africa’s leading Quick Service Restaurant and Casual Dining franchisor – Its brand portfolio includesSteers, Wimpy, Debonairs Pizza, Mugg & Bean, FishAways, House of Coffees, Brazilian Café and tashas.