Famous Brands and TFG falter

Building a business abroad isn't for the faint-hearted and recent updates show just how unforgiving and costly those bets can be in an economy stacked with risk

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Last week, we saw two examples on the local market of large groups that would probably be larger (in market capitalisation at least) if they just focused on where they can actually win.

Famous Brands has shed 20% of its value year to date. Before you let that shock you, The Foschini Group is down 40%. Yikes.

Let's dig into the recent updates to figure out why this is happening.

In the frothy days of the JSE in 2016, Famous Brands traded at more than R165 per share. Today, it trades at about R55. It might be tempting to blame the pandemic, but the truth is that Famous Brands was already well below R80 coming into 2020.

Aside from a valuation unwind that plagued many companies on the JSE, there was another reason for the sharp decline: poor capital allocation decisions.

Today, Famous Brands is a more streamlined group, but that's not saying much. It is still sitting on far too many businesses, in my opinion, with several operations that barely seem to make a profit.