Famous Brands Limited (JSE: FBR) has navigated a narrow trajectory after unveiling its recent interim earnings report last month. Challenges stemming from increased operational costs amid persistent power cuts and inflationary pressures shadowed the report, impacting profits. Notably, headline earnings per share dipped by 7%, landing at 199 cents from 215 cents. The strain emerged from heightened spending demands on alternative power sources and reduced consumer expenditure on discretionary goods—among them, their renowned brands like Steers, Debonairs Pizza, Fishaways, and Wimpy.
However, the consumer’s resilience surprised management. Despite economic strains, people persist in frequenting restaurants, possibly due to limited home cooking opportunities amid power cuts. To sway discretionary spending towards convenient food alternatives, expect enticing value deals, discounts, and loyalty programs to take centre stage.
Although the interim operating profit experienced a 6% decline to R371M, the company’s prudent dividend coverage allowed for a boost in dividends to R1.38 per share. This strategic move reflects their commitment to maintaining investor satisfaction and financial stability.
Technical
On the weekly chart, a descending triangle has formed, with the share price underpinned by psychological support at R57.09. However, the 50-SMA (blue line) has crossed above the 25-SMA (green line), indicating a shift in short-term momentum, making resistance at R59.99 challenging to breach.
With the descending triangle being a continuation pattern, a breakdown is possible should the resistance at R59.99 prevent any upside above the multiple SMAs. From R57.09, the first potential level of support is established at R55.39, where buyers could be found. Should a high volume breakdown result in a crossing below this support, the share price could trickle down to the demand zone around R51.93 in search of buyers.
Conversely, a breakout above resistance at R59.99 could trigger an upturn if the share price crosses multiple SMAs. The dynamic resistance of the triangle could then be the last line of defence, preventing a breakout toward higher resistance at R65.18. A rally like this could bring R67.82 and R70.00 into play in the longer term.
Summary
Despite its earnings faltering last month, Famous Brands has moved in a narrow range, trading sideways as investors remain unsure of the company’s prospects. However, support at R57.09 could be crucial in keeping the share price afloat, as a breakdown below this support could trigger a steeper downtrend as we advance.
Sources: Koyfin, Tradingview, Famous Brands Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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