QSR momentum at home, challenges offshore

#themes: leading-brands SA volumes, non-SA operations

FY26 results were supported by SA operations while non-RSA were a drag. We believe leading brands SA volumes turned positive in 2H26, led by QSR, supported by entrenched convenience-driven demand. CDR (casual dining restaurants) underperformance relative to QSR may be because of rising online retail penetration limiting mall footfall, ultimately impacting trading activity. While sector sentiment was constructive at the start of the year, this has softened post the Middle East conflict, although QSR's lower price positioning could support relative resilience. Notably, we understand QSR accounts for >70% of FBR's restaurant sales.

We have trimmed revenue and margin assumptions over the medium term to reflect broad-based offshore weakness. However, we expect SA leading brands to anchor performance-supporting efficiency gains for manufacturing and logistics, albeit elevated energy costs could limit efficiency yields. We estimate positive volume growth for SA leading brands (QSR-led) in FY27E, albeit without acceleration, with a more meaningful recovery in FY28E under a more supportive macro backdrop. Our base case assumes Middle East conflict-induced macro headwinds persist through most of CY26, acting as a near-term overhang. We forecast FY27E and FY28E diluted HEPS of 640c (+10%, prior: 667c) and 730c (+14%, prior: 785c), respectively, and revise our FVVR to R59–R64 (from R58–R68), implying a 24%–34% total return.

FBR retains pricing headroom vs peers, with SA leading brand price inflation exiting FY26E (+3.8%) below the sector (QSR: +4.6%; CDR: +5.3%). We view this as a function of its vertically integrated model, enabling in-house value engineering and more competitive pricing in a tight consumer environment. Assuming persistent inflationary pressures, we estimate FY27E pricing of c. 4.5% - 5.0%. Our ingredient cost analysis (ex-energy) suggests moderating inflation, particularly as beef prices stabilise, although the easing may prove short-lived should elevated energy costs begin to filter through into broader input costs.

FY26 results highlights:

• Revenue +5.6% y/y (vs FY25: +3.2%), in line with SBGSe (+5.8%);
• Operating profit +4.3% y/y (margin 10.9%, SBGSe: 10.9%); HEPS +12.3% y/y (SBGSe: +11.4%) benefiting from lower net finance charges (down 18%).

Scope for share buybacks: Following the completion of the Midrand cold storage facility, lower leverage (ND/EBITDA: 0.82x vs FY23: 0.89x), and expectations for lower capex over the next 2–3 years as manufacturing investments are staggered, we expect greater focus on shareholder returns. This could drive increased share buybacks under the approved 5% mandate (with only c.2% or c.3m shares utilised to date), alongside dividend growth, supporting a 12-month rolled forward dividend yield of c. 8.8% (vs. current spot yield of 7.6%). Key investment risks include weaker consumer spend, rising competition, input costs, and ongoing offshore drag.

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