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SOUTH AFRICA’S BIGGEST fast food operator has finally gained a foothold in the chicken business. Famous Brands has bought a controlling stake in a start-up rather than incur the costs of research and development itself. It’s a recipe that’s worked in the past and CEO Kevin Hedderwick anticipates it will do so again. Besides, the downside risk is small. Its initial outlay of R1,2m to cover operational costs for two years is small change and reflects the fact Giramundo – the firm in which it’s taken a 51% stake – is neither famous nor a brand in its own right. Not yet, anyway.
Hedderwick has been on the hunt for a chicken operation for the better part of the past decade. For Famous Brands, the acquisition of a controlling stake in Giramundo is a second bite at the chicken market: in 2003 it signed a deal with United States-based AFC International, with plans to roll out Church’s Chicken stores in SA and into 18 African countries over five years. It spent R5m in one year on 12 outlets before realising it wasn’t going to make the concept stick. Ever since then it’s been linked to various SA operators, but has failed to nail down a transaction.
Rather than buy the baggage of a more established operator – it’s been linked to both Nando’s and Chicken Licken – Famous has opted for a three container start-up in the Gauteng townships of Alexandra, Tembisa and Soweto, with plans for an outlet in Kokstad and Nelspruit by November. “It’s not about taking on Nando’s,” says Hedderwick. “We’ve a plan to grow this business by between 20 and 30 stores a year.”
The group is going to have its work cut out. The chicken category is fiercely competitive and dominated by KFC in the deep fried sector and Nando’s in flame-grilled, with a host of smaller, privately owned franchise operations also vying for space. Last year McDonald’s also announced its intention to be more competitive in the sector.
Giramundo does fit the Famous Brands growth profile nicely. Compared with its nearest listed rival, Spur Corporation, Famous Brands is considerably more dynamic and aggressive in terms of the number of brands it runs and the rate at which it buys up small players with potential growth prospects. By contrast to the Famous Brands growth story, Spur is sedate and more of a solid, dividend-yielding value play – content, it would seem, with delivering a more conservative investment return with fewer ancillary risks. When it comes to investing, which do you choose?
An investment in Famous Brands is a bet its solid management team will continue to deliver on its extraordinary growth strategy. Giramundo is one of four acquisitions made over the past 12 months. Famous’s Tasha’s deal – its first foray into a more formal dining concept – has a similar feel to Giramundo, in that both are retained as a minority shareholder: the entrepreneur founders who had the vision but not the capital to achieve his goal.
Famous Brands brings with it deeper pockets and four decades of franchise expertise. In concepts such as Giramundo and Tasha’s the group will be hoping to replicate at least some of its success with Debonairs. It was started by KwaZulu-Natal students and now has 309 outlets. More recent buys, such as Mugg & Bean and Black Steer, offer different growth potential.
Like Famous Brands, Spur has more than a 40-year track record. It listed in 1986 with 46 Spur outlets. However, relative to Famous Brands its expansion has been glacial. While Famous Brands has been an aggressive acquirer and builder of quick service restaurant concepts – with more than 1 500 outlets under its multiple brands – Spur in the almost 25 years since listing has introduced just two new concepts that have stuck: Panarottis and John Dory.
And while Famous Brands’ focus has been South African, Spur has been more adventurous in its global expansion. Its 250 Spurs, 50 Panarottis and 22 John Dory Fish & Grills in SA – with a further 36 outlets in Dubai, Australia and Britain – is something Famous Brands, which is considering prospects in Britain for its Steers brand, has considered. It may have been put off somewhat by the acquisition of the Wimpy business in Britain about three years ago, which has posed a tougher turnaround challenge than expected.
What next for Famous Brands? Spur? With a current market capitalisation of more than R1bn – twice what it was 18 months ago – it would be a massive, albeit attractive, transaction for Hedderwick to consider.
With revenues of R179m last year and profits of almost R69m, a large proportion of Spur’s earnings are paid out in dividends. In its most recent six-month results, the group delivered earnings of 50c and paid out 32c in dividends, putting on a historical yield of nearly 5%. It trades on a multiple of 13 times. Chairman and founder Allen Ambor retains a sizeable stake, and recent figures put investment house Allan Gray’s interest north of 15%.
Famous Brands trades on a multiple of 16 times and a dividend yield of just 3%. Does Hedderwick have the appetite? Probably.
Hedderwick has been on the hunt for a chicken operation for the better part of the past decade. For Famous Brands, the acquisition of a controlling stake in Giramundo is a second bite at the chicken market: in 2003 it signed a deal with United States-based AFC International, with plans to roll out Church’s Chicken stores in SA and into 18 African countries over five years. It spent R5m in one year on 12 outlets before realising it wasn’t going to make the concept stick. Ever since then it’s been linked to various SA operators, but has failed to nail down a transaction.
Rather than buy the baggage of a more established operator – it’s been linked to both Nando’s and Chicken Licken – Famous has opted for a three container start-up in the Gauteng townships of Alexandra, Tembisa and Soweto, with plans for an outlet in Kokstad and Nelspruit by November. “It’s not about taking on Nando’s,” says Hedderwick. “We’ve a plan to grow this business by between 20 and 30 stores a year.”
The group is going to have its work cut out. The chicken category is fiercely competitive and dominated by KFC in the deep fried sector and Nando’s in flame-grilled, with a host of smaller, privately owned franchise operations also vying for space. Last year McDonald’s also announced its intention to be more competitive in the sector.
Giramundo does fit the Famous Brands growth profile nicely. Compared with its nearest listed rival, Spur Corporation, Famous Brands is considerably more dynamic and aggressive in terms of the number of brands it runs and the rate at which it buys up small players with potential growth prospects. By contrast to the Famous Brands growth story, Spur is sedate and more of a solid, dividend-yielding value play – content, it would seem, with delivering a more conservative investment return with fewer ancillary risks. When it comes to investing, which do you choose?
An investment in Famous Brands is a bet its solid management team will continue to deliver on its extraordinary growth strategy. Giramundo is one of four acquisitions made over the past 12 months. Famous’s Tasha’s deal – its first foray into a more formal dining concept – has a similar feel to Giramundo, in that both are retained as a minority shareholder: the entrepreneur founders who had the vision but not the capital to achieve his goal.
Famous Brands brings with it deeper pockets and four decades of franchise expertise. In concepts such as Giramundo and Tasha’s the group will be hoping to replicate at least some of its success with Debonairs. It was started by KwaZulu-Natal students and now has 309 outlets. More recent buys, such as Mugg & Bean and Black Steer, offer different growth potential.
Like Famous Brands, Spur has more than a 40-year track record. It listed in 1986 with 46 Spur outlets. However, relative to Famous Brands its expansion has been glacial. While Famous Brands has been an aggressive acquirer and builder of quick service restaurant concepts – with more than 1 500 outlets under its multiple brands – Spur in the almost 25 years since listing has introduced just two new concepts that have stuck: Panarottis and John Dory.
And while Famous Brands’ focus has been South African, Spur has been more adventurous in its global expansion. Its 250 Spurs, 50 Panarottis and 22 John Dory Fish & Grills in SA – with a further 36 outlets in Dubai, Australia and Britain – is something Famous Brands, which is considering prospects in Britain for its Steers brand, has considered. It may have been put off somewhat by the acquisition of the Wimpy business in Britain about three years ago, which has posed a tougher turnaround challenge than expected.
What next for Famous Brands? Spur? With a current market capitalisation of more than R1bn – twice what it was 18 months ago – it would be a massive, albeit attractive, transaction for Hedderwick to consider.
With revenues of R179m last year and profits of almost R69m, a large proportion of Spur’s earnings are paid out in dividends. In its most recent six-month results, the group delivered earnings of 50c and paid out 32c in dividends, putting on a historical yield of nearly 5%. It trades on a multiple of 13 times. Chairman and founder Allen Ambor retains a sizeable stake, and recent figures put investment house Allan Gray’s interest north of 15%.
Famous Brands trades on a multiple of 16 times and a dividend yield of just 3%. Does Hedderwick have the appetite? Probably.
