Although 2012 has been a turbulent year for South Africa , with the mining strikes and surrounding violence serving as a catalyst for a more negative rhetoric towards the country , whilst also raising questions about the progress it has m ade since independence in 1994 ( especially with unemployment still so high), from a private consumption perspective we continue to see strong opportunities. In the post 2008-2009 era, what has been striking is just how well the consumer sector, particularly fast food which we are honing in here to illustrate our point, has performed. Comparing the re-based share price performances of the two South Africa fast food-focused companies we are going to look at here, Famous Brands (FB) and Spur Corporation , our South Africa retail index (the largest food and non-food listed retail companies in South Africa) against the benchmark FTSE/JSE Africa All Share Index clearly underlines this point as the fourth chart illustrates.
|Comeback Has Played Into Hands Of Fast Food|
|South Africa Private Final Consumption, real growth % change y-o-y|
What the first chart illustrates is that real private consumption has comeback strongly post 2008. We have seen a strong comeback in retail across the cycle from high-end food retailers like Woolworths to mass-market focused companies such as Shoprite - Africa's largest retailer. The fact that fast-food has done so well since 2010 in particular is not real ly surprising. Two basic tenets hold sway here: meat is particularly widely consumed in South Africa , especially among Middle Class households ; and there is a strong eat-out culture. The largest South African fast-food company, FB, owns a number of 'famous' South African restaurants as the name suggests including Steers (burgers), Debonairs (pizza) and Wimpy (burgers again). FB has grown particularly well over the past few years and the same can also be said of Spur. Quite a bit smaller than FB with annual sales of about US$65mn ( compared to the latter's US$290mn ) , its steak ranches are hugely popular. South Africa is also one of YUM! Brands (owner of KFC and Pizza Hut and the world's second largest fast-food company behind McDonald's ) , biggest international markets. More recently, it was announced that Burger King was throwing its hat into the ring. You also the South African restaurant Nando's well represented. Nando's is more of a fast-food restaurant in South Africa compared to its more upscale casual di ning model in the UK .
|Not Near Chipotle Levels Yet|
|Selected Companies Trailing 12 Month Price/Earnings Ratios|
South Africa is clearly an excellent growth market for fast food. High meat consumption, a strong eat-out culture and , from a logistical perspective, relatively excellent infrastructure compared to a lot of growth markets , combine to form a great opportunity. Spur's net sales have grown at a compound annual average rate of 20% over the past five years , while the larger FB has grown at about 16%. Growing from much lower bases than much larger global fast food giants and focused on a real growth market like South Africa where the industry is far from maturity auger well for growth over the next few years.
|SA Duo Between Chipotle|
|Selected Companies 5 Year Net Sales Geometric Growth|
We have included Chipotle in our visual illustrations here for comparison purposes. The US burrito restaurant has been one of the darlings of the investment community over the past few years. Interestingly, while they obviously trade at trailing price/earnings premiums to the much larger McDonald's, both FB and particularly Spur do not trade at dizzying multiples in excess of 30 , for example , despite the strong performances of their share prices since 2009. Both companies have grown earnings strongly over this period.
|Illustrates The Outperformance Of The Consumer|
|FTSE/JSE Africa All Share Index, BMI South Africa Retail Index, Famous Brands and Spur Corporation (31-12-09=100)|