South African restaurant giant Famous Brands Ltd (JSE: FBR) is grappling with significant economic headwinds, reflected in a 9% year-to-date decline in its share price, extending a two-year downward trend.
Investor confidence waned due to a challenging macroeconomic environment characterised by high inflation and steep interest rates. These factors dampened consumer demand, a critical driver of growth for the restaurant industry.
Further exacerbating the situation was South Africa’s load shedding, which disrupted operations and increased costs. Restaurants faced reduced trading days and relied on expensive backup generators, further straining profit margins. Rising insurance, food, and fuel costs added another layer of pressure to Famous Brands’ bottom line.
Despite achieving an 8% year-over-year revenue increase to R8.0 billion, operating profit declined by 6% to R812 million. This translates to a weaker financial performance, with full-year headline earnings per share dropping 5% to R4.65. The critical question remains: Can Famous Brands navigate this complex economic landscape and reignite investor appetite?
Technical
Famous Brands’ share price is currently trading in a pronounced downtrend, positioned below the 100-day moving average. The formation of a descending channel pattern further illustrates this bearish trajectory. A significant resistance level formed at R58.47 per share, aligning with the channel’s upper boundary. Following this resistance, the share price sold off, finding support at R49.52 per share amid oversold RSI conditions.
This support level sparked renewed buying activity, leading to a rebound and subsequent share price retracement. The 61.80% Fibonacci Retracement Golden Ratio has emerged as a critical price level, with the market unable to push past it yet. A breakout above this Golden Ratio could signal potential market interest in an upside move, possibly leading to a retest of the R58.47 resistance level. Conversely, should bearish momentum persist, the R49.52 support level will likely become a focal point for downside price action.
Summary
Famous Brands faces substantial challenges with a 9% share price decline, reflecting the impacts of high inflation and load shedding, among other factors. Key technical levels to watch include resistance at R58.47 and support at R49.52. Navigating these economic headwinds will be crucial for restoring investor confidence and financial stability.
Sources: Famous Brands Ltd, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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