Famous Brands growing quickly in a competitive market

In Famous Brands’ results for the year ended 29 February 2016, the group reported a 31% increase in revenue to R4.3bn, from R3.3bn previously. This increase can be partly attributed to the opening of 184 new restaurants across the brand portfolio, bringing the total restaurant network to 2,614 stores. Operating profit rose by 18% R792mn, from R672mn in 2015, while the operating profit margin declined to 18.4%, from 20.5% previously. As a result, headline earnings per share came in at 541 cents, 16% higher than the 467 cents per share in the previous period. The net asset value per share also increased during the period, up 9.4% to 1,554 cents per share. The board declared a final dividend of 215 cents per share, up from 200 cents in 2015, bringing the total dividend for the year to 405 cents per share. Famous Brands is now up 9.72% over the last four trading sessions as the share moved sharply higher on the back of these results. The counter is now very close to our short-term target price and we will begin reducing exposure today.

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Disasterous trading update from Grindrod

In a trading statement for the 6 months ended 30 June 2016, Grindrod advised shareholders the board expects earnings per share and headline earnings per share to be negative. This compares to headline earnings per share of 43.6 cents and earnings per share of 40.3 cents in the previous corresponding period. The decrease is mainly due to exceptionally weak, dry-bulk shipping rates during the first quarter. The market has recovered in the second quarter but is unlikely to be sufficient to erase the first quarter losses. Nevertheless, the group continues to boast a strong balance sheet, with minimal gearing and is well positioned to weather the current commodity cycle. The group will release an additional trading statement once it has obtained more certainty.

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Famous Brands buys Lamberts Bay Foods

Famous Brands ended marginally higher yesterday, up 1.39% at R115.59, helped along by news it had completed the acquisition of Lamberts Bay Foods. Lamberts Bay Foods, which was acquired from Oceana Group for an undisclosed amount, focuses on the processing of french fries and other value-added potato products. The business has been a supplier to Famous Brands for the past 20 years and was originally set up by Oceana in 1995 as a social responsibility project in order to offset job losses from the resulting decline in fishing opportunities in the region. This acquisition marks another step in Famous Brands goal of building capacity across its Logistics and Manufacturing Supply Chain operations.

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Brent crude breaks $50 per barrel

Brent crude oil rose above $50 a barrel for the first time in nearly seven months. Oil prices caught a tail wind after a sharper-than-expected drawdown in US crude stocks and stronger economic growth expectations. During yesterday’s session, data showed that US crude stocks had decline by 4.2mn barrels to 537.1mn barrels, the largest weekly decline in 7 weeks. As a result, Brent crude rose 0.64% to trade at $50.06 per barrel, after gaining $1.13, or 2.3%, during the previous session. Spot gold was also trading higher this morning, but continued to hover near a 7-week low. The precious metal was last trading 0.42% higher at $1,229.61/oz, after losing 0.23% on Wednesday.

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Tiger Brands expects a challenging second half

In results for the 6 months ended 31 March 2016, Tiger Brands’ turnover from continuing operations increased by 9% to R15.9bn. However, it must be noted that the group’s stake in Tiger Brands Consumer Goods (TBCG), formerly known as Dangote Flour Mills, was disposed of on the 25th of February 2016. Consequently, TBCG has been treated as a discontinued operation in these results. Meanwhile, operating income from continuing operations rose by 7% to R2.1bn, from R1.9bn previously, while profit before tax increased by R15% to R2.3bn. From continuing operations, basic earnings per share grew by 7% to 1,021 cents, while headline earnings per share increased to 978 cents, up from 975 cents in 2015. Total earnings per share were 26% higher at 1,049 cents, while total headline earnings per share rose by 14% to 975 cents. The board reported an interim dividend of 363 cents, a 7% increase on the previous period. Management expects the outlook to be challenging as inflationary pressures increase.

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PPC drops 18% in a single day

On Monday, PPC shed 18% to settle at R11.25, its largest decline on record. This followed news the group is seeking to raise R4bn. In addition, the cement maker said its credit rating would probably be downgraded. The proceeds of the capital raising will be used to reduce debt and fund expansion plans, with the group looking to expand further into Africa. This will be crucial in achieving PPC’s goal of doubling the size of its business every 10 years. It will also mean its debt will peak at around R12bn in the 2017 fiscal year. Lastly, PPC’s shares have fallen around 26% so far this year and just more than 44% over the last 12 months.

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Shoprite continues to push into Africa

Africa’s largest retailer, Shoprite, ended 1.23% lower on Friday as it moved to settle at R164.07, despite news that the group is looking to invest $572mn in Angola. Shoprite already has 2,188 stores in 15 countries across Africa, with the vast majority located in South Africa. As a result, the group is seeking to expand in fast-growing sub-Saharan markets, with Angola already replacing Zambia as Shoprite’s biggest contributor to sales outside of South Africa. Lastly, the group is seeking to spend an initial amount of $50mn in Angola and is currently in the process of appointing a commission to negotiate potential tax breaks and other incentives.

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Investec feels the impact of weaker currency

On Thursday, Investec released its results for the year ended 31 March 2016. The period was a challenging one for the group, characterised by a sharp weakening in the rand and economic challenges in both of the group’s main operating regions. In South Africa, the combined businesses reported an 8% increase in operating profit in rand terms, while the UK and other businesses grew operating profits by 12.8% in pounds sterling. Overall, operating profit increased by 0.6% to £583.9mn, from £580.7mn, and by 9.9% on a currency neutral basis. Meanwhile, on a statutory basis, operating profit increased by 2.5% to £505.6mn, from £493.2mn previously. Adjusted earnings per share came in 2.3% higher at 48.6 pence, from 47.5 pence previously, and increased by 11.4% on a currency neutral basis. Lastly, the board proposed a final dividend of 11.5 pence per share, taking the full dividend for the year to 21 pence, a 5% increase on the previous corresponding period.

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Home Depot falls 2.47% in spite of beating estimates

Home Depot ended 2.47% lower, on Tuesday, in spite of the group meeting (and surpassing) analysts’ expectations. During the quarter ended 30 April, Home Depot reported a 9% increase in sales to $22.8bn, marginally higher than estimates of $22.4bn. In addition, profit increased to $1.44 per share, up from $1.16 a year earlier, and substantially higher than an average estimate of $1.35. However, the results were overshadowed by slower first quarter sales growth, where comparable-store sales only increased by 4.3% in April, down from 6.7% in March and 10.2% in February.

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Barloworld falls 6.79% on interims

Barloworld ended sharply lower on Monday, falling 6.79% to R65.62, following the release of its interim results for the 6 months ended 31 March 2016. In it, the group reported a 4% increase in revenue to R31.9bn, despite a challenging trading environment. Profit before exceptional items rose by 6% to R1.087bn, while operating profit for the period increase by 1% to R1.756bn. Overall, basic earnings per share rose by 4% to 368 cents, while headline earnings per share came in 9% lower at 335 cents per share. This decline was mainly attributable to significantly reduced equity earnings from the group’s associates following losses incurred in its joint venture in the DRC.

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