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Famous Brands [JSE:FBR] CEO Kevin Hedderwick has sold almost R11m worth of his stake in the R4bn company over the past six weeks, raising questions about the group’s lofty 18 times multiple under tougher trading conditions. Not only is its traditional customer base feeling the pinch, but the group also faces mounting competition as international brands seek to expand their businesses in South Africa.
Yum Brands is considering re-launching Pizza Hut as a rival to Debonairs as early as next year and plans to double its current footprint of KFC outlets by 2020. Earlier this month Burger King was reported to be eyeing the South African market as a growth opportunity.
Hedderwick says: “We welcome competition. We have not only lived through – but thrived – since McDonald’s arrived on the scene 15 years ago, threatening to put most local competitors out of business. I think they (Yum Brands) are being ambitious, because the barriers to entry in SA on a number of fronts across the QSR market are significant and they’re going to have to have deep pockets if they’re going to compete.”
Hedderwick, who was paid a salary of R4,5m last year, says there’s no connection between the share sales – 27 individual transactions at an average price of R42,14 between 30 May and 15 June – and the threat of impending competition. His share sales did come just weeks after Famous Brands revealed it expected trading conditions in the current financial year to tighten amid a tougher consumer environment, with households being impacted by a range of higher administered prices, including punitive electricity, rates and transport charges.
While Hedderwick has sold down his holdings, he still retains one million fully paid for shares in the company and has options that vest over the next three years. Just last week he accepted 150 000 options at R43,40, valued at R6,51m. Therefore, his long-term future remains closely aligned with that of the company.
Hedderwick says his current bout of selling has ended and was part of a realignment of his investment portfolio. “Timing in truth is hopeless, but an alternative investment opportunity presented itself completely out of the blue and at short notice. I didn’t have the appetite to raise expensive debt to capitalise on the opportunity.” Hedderwick declined to reveal what that investment opportunity entailed.
Astute investors would have noticed Hedderwick wasn’t alone in selling down his stake in Famous Brands. Deputy chairman Theo Halamandaris has also been an active seller, disposing of more than 400 000 shares for around R17m since November last year. Despite some fairly big shares sales, the founding family remains heavily invested. In May last year main board directors (including family members) held 41% of the company; 12 months later that’s been reduced to about 40%.
Hedderwick is quick to downplay suggestions that the stock may have peaked over the short term. “I have a view – shared by the market – that in the immediate short term our share price represents fair value. But I remain firmly of the opinion the Famous Brands business – share price and market cap – still offers strong upside potential.”
Stanlib portfolio manager Shawn Stockigt – and long time admirer of the Famous Brands business – concedes the stock perpetually looks expensive. “I’d be lightening my exposure at these levels, not selling out completely, as there are nice growth opportunities for them in Britain and with the new Brewers’ Union business it’s launching in SA at the moment. You can’t fault the way they run the business – but Spur is cheaper.”
Yum Brands is considering re-launching Pizza Hut as a rival to Debonairs as early as next year and plans to double its current footprint of KFC outlets by 2020. Earlier this month Burger King was reported to be eyeing the South African market as a growth opportunity.
Hedderwick says: “We welcome competition. We have not only lived through – but thrived – since McDonald’s arrived on the scene 15 years ago, threatening to put most local competitors out of business. I think they (Yum Brands) are being ambitious, because the barriers to entry in SA on a number of fronts across the QSR market are significant and they’re going to have to have deep pockets if they’re going to compete.”
Hedderwick, who was paid a salary of R4,5m last year, says there’s no connection between the share sales – 27 individual transactions at an average price of R42,14 between 30 May and 15 June – and the threat of impending competition. His share sales did come just weeks after Famous Brands revealed it expected trading conditions in the current financial year to tighten amid a tougher consumer environment, with households being impacted by a range of higher administered prices, including punitive electricity, rates and transport charges.
While Hedderwick has sold down his holdings, he still retains one million fully paid for shares in the company and has options that vest over the next three years. Just last week he accepted 150 000 options at R43,40, valued at R6,51m. Therefore, his long-term future remains closely aligned with that of the company.
Hedderwick says his current bout of selling has ended and was part of a realignment of his investment portfolio. “Timing in truth is hopeless, but an alternative investment opportunity presented itself completely out of the blue and at short notice. I didn’t have the appetite to raise expensive debt to capitalise on the opportunity.” Hedderwick declined to reveal what that investment opportunity entailed.
Astute investors would have noticed Hedderwick wasn’t alone in selling down his stake in Famous Brands. Deputy chairman Theo Halamandaris has also been an active seller, disposing of more than 400 000 shares for around R17m since November last year. Despite some fairly big shares sales, the founding family remains heavily invested. In May last year main board directors (including family members) held 41% of the company; 12 months later that’s been reduced to about 40%.
Hedderwick is quick to downplay suggestions that the stock may have peaked over the short term. “I have a view – shared by the market – that in the immediate short term our share price represents fair value. But I remain firmly of the opinion the Famous Brands business – share price and market cap – still offers strong upside potential.”
Stanlib portfolio manager Shawn Stockigt – and long time admirer of the Famous Brands business – concedes the stock perpetually looks expensive. “I’d be lightening my exposure at these levels, not selling out completely, as there are nice growth opportunities for them in Britain and with the new Brewers’ Union business it’s launching in SA at the moment. You can’t fault the way they run the business – but Spur is cheaper.”
