Burger Brexit Hit Sends Famous Brands Tumbling Most in 14 Years

JOHANNESBURG (Capital Markets in Africa) – Famous Brands Limited slumped the most in 14 years after the South African fast-food chain owner said its U.K. Gourmet Burger Kitchen business, acquired months after Britain voted to leave the European Union, may only return to profit in the next financial year.

The stock dropped as much as 17 percent in Johannesburg, the biggest intraday decline since June 11, 2003. First-half earnings per share fell as much as 60 percent in the six months through August, Famous Brands said in a statement Tuesday. The owner of Steers burgers and Debonairs Pizza said difficult trading conditions also persisted in its home market.

“The U.K. environment with Brexit has turned out to be considerably worse than initially expected,” weighing on the performance of the Gourmet Burger Kitchen chain, said De Wet Schutte, an analyst at Avior Capital Markets. While the timing of the purchase was “unfortunate” in light of the Brexit vote, the investment shouldn’t be judged on the first six months, said Schutte, who has an outperform rating on the stock.

Famous Brands bought Gourmet Burger Kitchen in September last year in a 120 million pound ($158 million) deal and said it remains optimistic that the business will add value in time. It has curtailed the opening of further Gourmet Burger restaurants in the short term, with pre-opening capital costs of about 1 million pounds per store.

Food and clothing retailers and restaurant operators are struggling in South Africa as weak economic growth, unemployment of 28 percent and what Famous Brands described as “socio-political uncertainty” curb consumer spending.

Famous Brands traded 11 percent lower at 104.71 rand as of 1 p.m. in Johannesburg, extending its slump this year to 33 percent. The benchmark FTSE/JSE Africa All Share Index was little changed.

Source: Bloomberg Business News