Famous Brands share price reversing course following results release

Key Takeaways

1. Revenue and Cash Flow Growth: For the year ended 29 February 2024, Famous Brands Limited reported an 8% increase in group revenue to R8 billion and a 13% rise in cash generated from operations to R1.1 billion, reflecting strong sales and effective cash flow management despite challenging economic conditions.

2. Decline in Operating Profit and HEPS: Operating profit declined by 6% to R812 million, and headline earnings per share (HEPS) fell by 5% to 465 cents. These decreases were mainly due to lower consumer spending, which affected restaurant turnovers and, in turn, impacted the manufacturing and logistics segments.

3. Mixed Supply Chain Performance: The company's supply chain operations showed varied results. Manufacturing revenue increased by 9.4% to R3.3 billion, but operating profit dropped by 1.7% to R297 million due to higher insurance costs and load shedding. Logistics revenue grew by 6.7% to R5 billion, but operating profit fell to R94 million because of rising operational costs. Conversely, the retail segment saw significant growth, with revenue up 35% to R368 million and operating profit reaching R6 million.

4. Expansion Plans: Famous Brands intends to expand its restaurant footprint across South Africa (SA), the Southern African Development Community (SADC), and Africa and the Middle East (AME) regions. The company plans to enhance its drive-thru services, invest in consumer-facing technology, and boost home delivery capabilities to stay competitive and meet consumer demand.

5. Long-term Strategic Initiatives: The company will focus on optimizing logistics and manufacturing operations, including relocating cold storage facilities and updating aging plants with new technologies. The retail division plans to introduce new product lines to build a sustainable revenue stream. Additionally, Famous Brands is exploring opportunities to divest non-core assets to unlock shareholder value while maintaining a well-managed debt profile.

Financial Performance

Famous Brands Limited reported a steady financial performance for the year ended 29 February 2024. The group's revenue rose by 8% to R8 billion, reflecting the company's robust sales despite economic challenges. Cash generated from operations increased by 13% to R1.1 billion, highlighting strong cash flow management. However, operating profit saw a 6% decline to R812 million, influenced by a one-off dividend from the previous year that inflated the prior period's results. Headline earnings per share (HEPS) also dipped by 5% to 465 cents. This decline was primarily due to lower consumer spending affecting restaurant turnovers and subsequently impacting manufacturing and logistics segments. Despite these challenges, the company maintained a positive trajectory in its revenue growth, showing resilience in volatile market conditions.

Supply Chain Efficiency

Famous Brands' supply chain operations, encompassing manufacturing, logistics, and retail, showed mixed performance. Manufacturing revenue grew by 9.4% to R3.3 billion, yet operating profit decreased by 1.7% to R297 million due to increased insurance costs and load shedding issues. Logistics revenue increased by 6.7% to R5 billion, but operating profit fell to R94 million, impacted by rising operational costs. On a positive note, the retail segment experienced significant growth, with revenue increasing by 35% to R368 million and operating profit reaching R6 million, driven by higher sales volumes and expanded distribution channels. This growth underscores the potential of the retail segment in contributing to the company’s long-term profitability.

Strategic Outlook

Looking ahead, Famous Brands plans to expand its restaurant footprint in South Africa (SA), Southern African Development Community (SADC), and Africa and the Middle East (AME) regions. This expansion includes enhancing drive-thru services and investing in consumer-facing technology to boost home delivery capabilities. The company also aims to support its franchise partners during load shedding by offering reduced royalty rates. Additionally, Famous Brands will focus on optimizing its logistics and manufacturing operations, including relocating cold storage facilities and updating aging plants with new technologies. The retail division is set to introduce new product lines, aiming to build a sustainable revenue stream. Furthermore, the company is evaluating opportunities to divest from non-core assets to unlock shareholder value while maintaining a well-managed debt profile.

Famous Brands – technical view

The share price of Famous Brands is testing a reversal of its longer-term downtrend at present. The price has started making higher lows, and if the price can manage to produce a close above the 5500, it would mark a higher high. Higher highs and higher lows assume the building blocks of an uptrend in technical analysis terms.

Traders hoping for a bullish reversal might wait so see if we can get the price close above the 5500 level. In this scenario, 5750 becomes the initial upside resistance target, while a close below 5250 would suggest the failure of the move.

Should the price instead move to close below the 5250 level, we would assume the longer-term downtrend to be resuming with 4970 the initial support target. In this scenario, a close above the downward trend line may be used as a trailing stop loss indication.