Thembeka Sobekwa’s top 3 JSE picks
Portfolio manager Thembeka Sobekwa picked 3 South African companies – Famous Brands, Astral, and The Fsochini Group (TFG) – as her JSE stock picks.
Sobekwa works as a portfolio manager for the Mianzo Equity Funds. She holds a BBus.Sci in Actuarial Science majoring in the field of Quantitative Finance.
Her background includes working at Clade Investment Management as a Junior Quantitative Analyst.
Additionally, she is involved in the Absolute Return investment process, highlighting her comprehensive expertise in the field.
For her stock picks, she focused on the fact that many South African stocks have been struggling under tough macroeconomic conditions, especially those exposed to consumer spending.
As a result, the companies being considered have some sort of competitive advantage which helps them perform well during a recovery.
Famous Brands, her first pick, is a well-established quick-service restaurant (QSR) and casual dining franchise business.
It stands out due to its strong brand portfolio and efficient operations, despite facing challenges such as load-shedding and high fuel prices.
The company dates back to the 1960s, and now has 2,914 restaurants, 11 manufacturing facilities and 188 retail products.
Astral, her second choice, is the largest integrated poultry producer in South Africa with stable operations and a strategic approach to managing costs.
Despite facing issues like load shedding and avian flu, Astral’s focus on efficiency and capacity makes it a resilient pick.
Lastly, TFG, a diversified retail group, offers significant growth potential through its African, London, and Australian operations.
The group’s portfolio consists of 34 speciality lifestyle and apparel brands, including @home, sportscene, Jet, and American Swiss.
TFG has heavily invested in its African business and is poised for margin improvement, making it an attractive option for investors.
Below are the three JSE picks Sobekwa thinks will hold value for investors.
Famous Brands

First, Sobekwa picked Famous Brands, a QSR and casual dining franchise business.
The company has a market cap of R5.38 billion, and has two main portfolios: Leading Brands and Signature Brands.
Leading Brands includes well-known QSRs like Debonairs and Steers, while the casual dining segment features Mugg & Bean and Wimpy. Signature Brands offers more bespoke dining experiences with restaurants like Turn ‘n Tender.
The company also supports its stores and franchises through manufacturing, logistics, and distribution, and has a retail business that sells products in supermarkets like Pick n Pay and Makro.
Famous Brands generates 92% of its revenue in South Africa, with some stores in Africa, the Middle East, and the UK.
Sobekwa said that she is particularly fond of Famous Brands for its Leading Brands segment, which holds the second-largest market share in the consumer food services sector, just behind KFC.
“It’s very appealing because of the good brands that they have,” Sobekwa said.
Some of its brands are leaders in their categories, like Debonairs in pizza. The company also benefits from good locations and experienced franchise partners.
Recently, Famous Brands has faced challenges like load-shedding, high fuel prices, and water stoppages, which have impacted their operations.
Despite these challenges, management has successfully managed input cost pressures and pushed through selling price increases without significant volume decline.
In the 2023/24 financial year, they managed to increase prices in the casual dining segment, including Wimpy and Mug & Bean, without losing volumes, although there was a slight volume decline in the QSR segment.
Famous Brands benefits from experienced leadership and franchise partners, with 45% of their franchise partners having over 10 years of experience.
Leading Brands boasts a high operating margin of around 50%, peaking at 60% in the past.
Signature Brands, on the other hand, has historically been loss-making. While it is now profitable, with operating margins between 5% and 6%, it is nowhere near Leading Brands.
For these reasons, and because of its strong fundamentals and improved balance sheet, Sobekwa reiterated that she would buy Famous Brands mainly for the Leading Brands segment.
With debt levels now more manageable and current price-to-earnings ratios under R50, it is an attractive entry point.
Astral

Next, Sobekwa picked Astral, an integrated poultry producer with a market cap of R592.31 billion.
She explained that when you invest in Astral, you’re essentially investing in two businesses: a feed business and a poultry business.
The feed business is a quality operation with stable margins. It can pass on inflation costs to customers without losing volumes, thanks to its strategic locations that help manage costs effectively.
This part of the business is well-run and not a major concern.
While the poultry business is subject to cyclicality, it is known for its good operations.
Poultry production has a strong case in South Africa since it remains the cheapest source of locally produced meats, “so it does end up making it into the average consumer basket,” she said.
Last year, Astral faced significant challenges such as load shedding, which led to the “big bird phenomenon,” and an avian flu outbreak.
However, the company’s recent financial results show that it has managed to navigate these issues, thanks to the quality of its operations, and their focuses on efficiency both in farming and processing.
Currently, Astral processes 4.9 million birds per week and has the capacity to process 6.2 million birds.
They can increase this capacity without raising costs, maintaining their status as a low-cost producer. This efficiency makes Astral a very appealing investment at this point.
Astral also has very little debt, and Sobekwa believes that management will soon pay off their remaining debt. Once this happens, the company is expected to resume paying dividends.
TFG

Sobekwa’s final pick was TFG. With a market cap of R44.85 billion, the group operates in Africa, London, and Australia.
Post-Covid, the company has benefited from its diversified portfolio, with the London and Australia businesses performing well while the African segment faced a decline.
However, recent sales figures show a decline in London and Australia, with the focus shifting back to the African business.
TFG has heavily invested in its African operations, and it is now time for these investments to yield returns, she said.
The company has focused on top-line growth through acquisitions like Tapestry and Jet, and has also invested in systems, quick response manufacturing, and Bash.com.
Currently, TFG’s margins are very depressed, with the gross profit margin at 39.5%, the lowest it has ever been.
There is potential for margin improvement, which is crucial since Africa makes up a significant portion of TFG’s business. The valuation of TFG is highly sensitive to improvements in African margins.
Sobekwa believes there is a case for margin improvement in TFG due to several factors.
These include easing pressures from load shedding costs, continued investment in cost-saving initiatives, and reduced losses from Bash.com. Additionally, there have been fewer discount sales recently, which supports gross profit margins.
Overall, TFG has lagged behind its peers but is now looking very attractive due to its diverse portfolio and the potential for margin improvement, Sobekwa concluded.
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