Famous Brands Shares – A Very Tasty Morsel

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“Restaurant stocks make very good investments. There is a demographically fascinating paradigm shift in the eating habits of the working class. The massive increase in the mobility of the workforce, urbanisation and the emergence and growth of a large middle class with enormous spending power has created huge opportunities for the food business.”

People now eat their breakfasts, lunches and dinners on the road and every year a greater proportion of meals are eaten outside the home. Sadly the days of the entire family sitting down and enjoying a meal together, without television or sms’s, seems to be a thing of the past.

Classic examples of great fast food investments include Kentucky Fried Chicken, McDonalds and Dunkin’ DonutsMcDonalds has increased in value by over 400 times and has been so rewarding because it is constantly changing its menu and re-inventing itself and because it has been able to expand phenomenally overseas. This is the catalyst for growth – duplicating the same model in other countries. Most world economic growth is originating in emerging markets and these established and well-run companies have this exposure.

China and India have a combined population of 2.5 billion citizens and they are becoming more Americanised by the day. They are now able to access Western habits and cultures. Huge opportunities also await in Russia, Brazil and Africa.

In South Africa we have Famous Brands Limited. Famous Brands is Africa’s leading ‘Quick Service’ and ‘Casual Dining Restaurant Franchisor’. It has over 2500 franchise restaurants spread across South Africa, 17 African countries and the United Kingdom. It’s most well known brands are Steers, Wimpy, Debonaires Pizza, Mugg & Bean, FishAways, House of Coffees, Brazilian Café, Tashas and Black Steer.

The major turning point for this company came when it acquired Wimpy. Before this no one was paying attention.  The Wimpy deal took Famous Brands from 500 to 1000 outlets. Now, of course, it is so much bigger.

Famous Brands remains a misunderstood stock. It is not merely a coupon clipper of franchise fees. There has been major backward integration in that it makes a huge chunk of its profits from distribution and production services for its franchised outlets. It also has blue sky potential as it expands its brands into Africa and other countries. It has iconic brands, Wimpy coffee isn’t half bad and more and more people are eating Debonaires Pizza. If investors had kept their eyes open they would have invested steadily in Famous Brands shares over the years. After the Wimpy acquisition you could have bought the shares for 250c. They are now approaching R160 –  an increase of nearly 80 times!

On the 1st September 2016 Famous Brands announced the acquisition of Gourmet Burger Kitchen (GBK) for R2.1 billion. GBK is the pioneer of the premium burger category in the U.K. GBK has 75 company owned restaurants offering an eat-in and take-away service and online delivery.

Kevin Hedderwick describes this deal as transformative. GBK is a best in class business and brand, with growing consumer equity, supported by a phenomenal leadership team.

Fenestra has always liked this share. Our research has identified some new ideas. For a free and confidential review of your share portfolio, please do not hesitate to contact us.

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