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Famous Brands 22 May 2025

Resilient performance amidst front-end pressures

Tinashe Hofisi

#themes: volume growth, margins

Famous Brands’ FY25 results were underpinned by cost savings, offsetting soft front-end volumes. In our view, the uninspiring volume performance reflects pressure on consumer disposable income (also impacting transaction value) and higher-than-usual revamp activity (c. 11% of SA stores vs. 8% average), which diluted the benefit of c. 3% store growth in SA. We believe management’s focus on phased manufacturing upgrades over the next three years signals a strategic push for back-end efficiencies as volumes could remain subdued (FY26E: +1% to +2%, despite low base effects), considering ongoing macro uncertainty. We believe FBR’s fundamentals (cash conversion rate c. 100% and stable portfolio of franchise partners) remain intact, including an attractive DY c. 8%. We understand post-period end trading activity exhibits improving volumes (March and April) across both QSR and CDR. 

FY25E results highlights:

  • Group revenue was up 3.2% y/y (SBGSe: +7% y/y) with operating profit up 12.6% y/y (SBGSe: 10.4% y/y) translating to margin expansion of c. 90bps y/y to 11% (SBGSe: 10.4%). Margin expansion in Leading brands SA (53.3% +330bps y/y) and manufacturing (11% +200bps y/y) offset contraction in the remaining segments. HEPS of 520c was up 12%y/y (SBGSe: 526c + 13% y/y) and DPS increased by 14% y/y to 345c (SBGSe: 340c +13% y/y).
  • Leading brands SA revenue growth was muted, up c. 1% (total sales +3.9%, LFL sales: 1.4%), while signature brands remain under pressure and subscale (total sales: -2.7%, LFL sales: -0.5%). Manufacturing revenue was up 3%, comprising of volume (+1.5%), price (+4.3%) and mix (-0.2%). Logistics revenue was up +4%, comprising of volume (+3.7%), price (+1.6%) and mix (-1.3%).
 

We expect Manufacturing and Leading Brands SA to anchor FY26E operating margin, sustained by ongoing cost savings initiatives, improved volumes off a low base, and stable menu pricing between 4%–4.5%. We anticipate management to temper ambitions in the AME region following operational challenges in the UAE. Nonetheless, the SADC region continues to deliver relatively strong growth despite persistent inflationary pressures. While portfolio optimisation could continue in the UK.

Despite margin upgrades for Leading Brands and Manufacturing, our earnings downgrade reflects a drag from Signature Brands and International operations, particularly AME and the UK. We estimate AME’s path to profitability could take around three years. We now forecast FY26E HEPS of c. 618c (+19% y/y, previously 625c) and FY27E HEPS of 729c (+18% y/y, previously 732c). We expect store growth to normalise to historical levels of 150–160 stores p.a., while planned revamp activity in 1H26E may temporarily constrain volume growth.

We revise our FVVR to R66–R70 (from R68–R72), implying a total potential return of 20%–27% including an 8% dividend yield. Medium-term capital allocation is likely to prioritise manufacturing upgrades and debt reduction, while maintaining an 80% payout ratio (LT target: 90%). Key risks include slower QSR volume recovery, rising competition, and store closures.


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