Episode Transcript
The Finance Ghost: Welcome to episode 235 of Magic Markets, where Moe has solemnly sworn that he will not talk about his Novo Nordisk position. We will not mention his Novo Nordisk position. In no way, shape or form will we tease him about what's happened to Novo Nordisk this week. I will not say I told you so. Absolutely none of that is going to happen on the show, Moe, you'll be thrilled to know.
Mohammed Nalla: I'm laughing because I'll tell everyone, right, it's a Novo...
The Finance Ghost: …it's better than earlier because earlier you were almost crying. So, I mean, that's a huge swing. That’s a positive turn.
Mohammed Nalla: It's the denial laugh, right? Novo Nordisk, for those not watching, at the time of this recording, the stock is down 20%. It's been a complete disaster. The reason Ghost is laughing is a while ago we actually had this debate of whether I cut the position or let it ride as a speculative position. This went into my speculative position bucket. Guess what? It hasn't worked out.
Now, why that's interesting and relevant to today's discussion is Novo Nordisk is on one hand the poster child for GLP-1 drugs. It's getting people that are obese to stop eating that much. It's actually been fantastic. And it's not just Novo Nordisk, it's Eli Lilly.
We're not talking about GLP today, we're actually talking about the other side of the coin. We're talking about junk food, we're talking about QSRs, that's quick-service restaurants. And what we're going to do with the show this week is we're going to have a look at some of the trends that are happening down in South Africa, what's working there, and then we're also going to just compare that to what some of the stocks globally in the QSR space.
We've also just recently covered Chipotle Mexican Grill in Magic Markets Premium. We're not going to give away what's behind the paywall there for our paid subscribers because that would be unfair to them. But again, some interesting insights overall that we can use on a macro basis. And if you are actually interested in the specifics in how that actually drills down from a fundamental perspective, a fundamental analysis on a specific name, please go and check out Magic Markets Premium. It's only R99 a month. Great value for deep insights there.
Ghost. I'm going to stop with the sales plug there because there's so much to talk about. I'm sitting in the middle of summer, I'm certainly eating a lot more junk food, probably a bad thing. But QSRs as a business, despite that behaviour, despite the fact that Moe's on a binge at the moment and Ghost really loves some of his tacos and Mexican food - despite all of that, QSRs are a really, really tough business model. And if we look at South Africa, we've seen some success stories and then we've seen some real failures where they've tried to take international brands, bring that into a local market.
And so my question is” is the South African market fit for purpose or is it just too small? What have some of those success stories been and what are some of the pitfalls? Let's maybe use that as an overarching backdrop. Where do you want to jump in? There are a couple of questions that I've layered in there.
The Finance Ghost: Yes, on the local market there are a couple of choices, right? So the two obvious ones are Spur and Famous Brands. And then you get some other weird stuff where there's some look-through exposure. So perfect example at the moment is Brait, which owns Kauai, which was kind of bundled in with Virgin Active. Kauai, by the way, has got to be one of the best local QSR stories of post-pandemic. It's growing beautifully. I can tell you - taco jokes aside, I spend more at Kauai than any other food outlet by a country mile. The smoothies, the wraps, etc. and that's because it is healthier and just fresher than a lot of the other alternatives. So it talks to that whole consumer trends thing. We'll talk about that later, around people being more conscious of what they're eating.
But basically, if you're looking for pure plays on the JSE, it's Spur and Famous Brands. And here's something quite interesting, is they are both now trading on a P/E of around 11x. So if you look over five years - there's absolutely no contest here whatsoever over five years - and this is obviously since pandemic lows - Spur up 110%, Famous Brands up 39%. So obviously Spur was the one you want. But over the past year, Spur down 3.5%, Famous Brands up 8%. And as I say now, both on a P/E of around 11x. Now, I would choose Spur all day, every day in that regard, not just because that's also what I would choose from a food perspective, but because their business is a lot simpler.
The Spur Group has got just over 700 restaurants, basically. It's around 300 Spurs, around 200 Panarottis, RocoMamas is up to almost 150 now. And then they have a long tail of other restaurants that they experiment with. But Famous Brands is far less focused. They have nearly 3,000 restaurants. There are more Debonairs pizza outlets than there are total Spur group outlets. So talk about betting the farm on just one or two tastes and hoping that people will just keep buying it. If you think Famous Brands, you think the food court, you think about - there was a point in time where it felt like they just owned everything you would find in your local food court. They’ve got Steers. They've also got some really old stuff that feels very just out of it now. Stuff like Wimpy, for example. They've got Mugg & Bean, which has a great lunch offering and breakfast, but almost no participation, really, in dinner.
But the problem with Famous Brands, actually, to answer your question, Moe about is South Africa big enough, is that Famous Brands has gone off and tried to do international deals and it went really badly for them. There was the failure of Gourmet Burger Kitchen in the UK market, whereas Spur has actually just kept things a lot simpler. The deals that Spur has done have been pretty much local. So RocoMamas is a great example. I remember when the first RocoMamas opened in Pineslopes in Joburg, very near where I lived. This was back during articles, I think, and it was full all the time. And every time they opened a new one, it did really well. And pretty early in that journey, Spur came on board and they invested and basically they brought their skill in scaling the business, which of course is a huge part of the appeal with this business model is it can scale really, really quickly. And today, RocoMamas is an incredible success story. It really is fantastic. Spur has now also bought into Doppio Zero, for example, so there's another local transaction. So their whole business is built around South Africa effectively, whereas Famous Brands has done some other stuff. They've tried to go international. It hasn't really worked.
And I think the biggest issue is that the Famous Brand South African business just feels like it's also taken a knock. We've had a lot of changes to how consumers are spending their money, what it is that they are willing to eat. And Famous Brands just feels a lot more old-school to me, whereas Spur really locks in a lot of that play around families with kids. That's the classic story, right? You take the kids to Spur, it's the default. And the fact that they understand that and they have a core element to their business makes them a pretty solid story. But obviously, Moe, on the international stage, you're seeing names on the market there like McDonald's and Yum Brands, for example. I mean, these are genuine global powerhouses, right?
Mohammed Nalla: Indeed, Ghost. Just before I even move on to some of the international names and stories there, right? Spur, that's a number one on the list when we head down to South Africa, my kids love to go to Spur, so that probably comes in first. And then further down the list, maybe a Panarotti’s or some sort of pizza spot. The interesting thing that we mentioned though, and this will play nicely into the international story, is you mentioned that over indexing by Famous Brands on pizzas like Debonairs pizza. And if you look internationally, the pizza business has actually really struggled. If we look at Domino's Pizza as one of those flagship names up here in North America, they've really struggled versus some of the burger brands. So maybe burgers are just really popular because I know Shake Shack, for example, that stock’s really rallied very, very strongly recently. And so my question there is that you're kind of getting the diversified brand exposure at Famous Brands, and whether that works or not depends on the mix underlying that. And again, we've identified a very interesting company in Latam, in South America, effectively. They've got the licenses for a lot of the international brands there. And again, we referenced some of that in our paid show. So again, if you're a subscriber, go and have a look at that.
But Ghost, I'm going to segue from that very quickly into just one look, one dimension on how some of these international brands did, because it talks into the popularity of different types of food over different periods of time. And so I went all the way back and said, if we look to the peaks that we had in the QSR space in kind of the late-2019 era, just pre-Covid, actually, most of these QSRs were doing kind of well over that time period in North America. And then we saw the pandemic and this saw most of those stocks trade down between 35% to 65% because no one could go and eat out. So from those Covid lows, I was kind of cheating. I said, let's pick the low here, and let's use that as a a starting point to see how have stocks, how these brands done from those Covid lows onward. And it's actually been very volatile, with different winners through different times. So if we actually just break that down, in 2021, we had Chipotle Mexican Grill. That's the stock we just covered in premium. That was up 243%, okay, when all of the others were only around 30%. And even some of the best performers, the number two position, came through at around 130%.
So that showed you how one player was just doing really well. Strong brand cachet resonated with its target market. Mexican was arguably very popular around that time. And Chipotle was a market darling. Now into that early rally, if we go from that time period through to mid 2023s, again, Chipotle was a clear winner. They outpaced all of the others. They were up around 290%. But then we started to see some disruptors, and there was a company that came through. You actually highlighted this to me, it was a meme stock that came through. It's called Wingstop. And we actually covered this in a show on meme stocks when we looked at Gamestop. So we had Wingstop and Gamestop, and Wingstop was actually up 175% at its respective peak.
But I didn't mention pizzas, because around that same time, Domino's Pizza, while all the others were winning, was actually down around 10%. So the reason I highlight this is that you actually have the popularity of different food types coming through at different periods of time. And so by the end of 2023, again, that rally started again. Chipotle, Wingstop, I've mentioned, but most of the others actually came through with decent performances. The interesting thing here is that your burger brands, if we look at McDonald's or if you look at a more diversified group like Yum! brands, they were up between 60% to 95%. But pizza, I don't know what it is with pizza Ghost, I certainly don't eat a lot of pizza anymore. Maybe it's the carbs, maybe we're all being a lot more health conscious. But Domino's continued to lag. Even though they were up, they were firmly in last position. And so the point I want to land on here is that we've actually got winners and losers. But the interesting dimension here is at different times over the course of the last five to seven years, you've seen different food types come through as strong winners. And right now you've mentioned RocoMamas, maybe that's just on the back of the fact that burgers seem to be very popular. A lot of those burger brands, again, the more niche ones, like I say Shake Shack, that's a premium offering. I would kind of compare that to RocoMamas. They're strongly shooting the lights out. Whilst the kind of more middle of the road brands like McDonald's, they've done okay, but it's been pretty much sideways action since then.
I'm going to pause there because I want to come back into South Africa and I want to understand what's working, what's not working? Is it a breakfast format? Wimpy, that used to be very popular, but recently that's just lost its appeal. On my last visit down, I tried Wimpy again. Wasn't impressed. Tasha's, for me, that's a strong contender on the list. I like going to Tasha's for breakfast and so you see some of those dimensions come through. But what's interesting is for food is it’s very localised, very regionalised and maybe that talks back to your point around Spur that really appeals to South African palates, where if you're trying to actually then take a US brand that's maybe resonated in an international market that doesn't necessarily port as well into some of the local markets unless they make tweaks to the overall menu.
The Finance Ghost: I think referencing Wimpy and Tasha's in the same sentence could be a world first because that has got to be, Moe, the full spectrum of food.
Mohammed Nalla: It's the breakfast play, right? I'm saying breakfast. I like Tasha's. There's a diversity there. There's some healthy options on there. Wimpy used to be the breakfast play. I wasn't really going there for their burgers. I'd go to, you know, you mentioned RocoMamas, I’d go there for their burgers.
The Finance Ghost: Not for the yellow mustard, that basically makes you visible from space by the time you're done?
Mohammed Nalla: The coffee used to be reasonable, but again, In North America, McDonald's has actually made strong inroads into the coffee space. They actually - interesting point here. They went and bought the player higher up in the supply chain that used to supply Tim Hortons, which was one of the most popular brands in Canada from a coffee perspective. And guess what happened? Tim Hortons fell all the way through the floor. That sits in another company, Restaurant Brands International, ticker there QSR. But McDonald's has become one of the most popular on the go coffee brands, which you wouldn't really think about. But they did that in a very clever way because like I said, they went up the value chain, they took out the supplier and they've actually completely destroyed one of the competitors in that space. But yeah, let's go back to Tasha's and Wimpy.
The Finance Ghost: I'm so grateful for South African food standards where we know that coffee is not something you buy at McDonald's at this end of the world. But anyway, let's talk about what actually works in the space, obviously, without making jokes about personal preferences, because you do have to be very careful in this sector. It's very easy to have a view of: I eat this food, I don't eat that food, hence the one I eat is a great investment and the one I don't like is a bad investment. It's actually very easy to make that mistake in the sector, even more than in the retail sector, where people also tend to apply their own consumer bias. But having said that, if you look at where you eat and where your friends eat, that is very useful data point as well, so don't completely ignore it.
So what is some of the stuff that works in this sector? First point is, if you are a franchise business, then you are growing through that wonderful concept that all investment bankers are familiar with: Other People's Money. Someone phones you up and says, hello, I would like to open a KFC or I would like to open a Debonairs, or I'd like to open a Spur, and you say, thank you very much, this is how much you need to pay. And bang, there's a new one, there it is. And as the listed company, you didn't even need to spend a cent. In fact, you got paid upfront for the privilege of someone opening a store with your name on it. So the franchise model is lovely.
Then there's a point around how this is such an important scale play. And here you look at something like Famous Brands, their logistics side of their business is actually where the money is made because they've got this massive footprint of restaurants that they are basically servicing as a food service business, almost the same way as a Bidcorp would, for example, but just only servicing their own businesses. And so that's difficult in the early days when you don't have enough footprint, you lose a lot of money early days by building out the back-end infrastructure and all the processes and trying to attract franchisees and everything else.
And if you manage to reach efficient scale, then you can actually make it work. And that was the sad story around - I think it was Taste Holdings that is just a great example of where that scale play goes wrong. They had massive delusions of grandeur. They believed that they could go and build out Domino’s in South Africa. And it was a sad story because I think it was Scooter's Pizza that basically got turned into Domino’s and then subsequently failed. It just didn't work because it was so expensive to get everything off the ground.
And that brings me to the next point of what works in South Africa, which is primarily homegrown names. Yes, we like our McDonald's here. I think Burger King's done pretty well, that was brought here by Grand Parade Investments. Again, not an easy thing to get off the ground actually, even though they were basically queues at that first Burger King when it opened in Sandton. I remember that as well. Seems to be a scary trend Moe, where I appear to have far too many memories of fast food places opening and what the queues looked like. I'm going to just pretend that that's not a reality of my life.
Anyway, the homegrown names are the ones that have done better. And a big part of that is because the economics are much tougher when you are the master franchise holder for a region like South Africa and you are paying royalties away to a big international name. So that's what went wrong with Domino's. On something like McDonald's or Burger King, yes, it has worked out in the end, but remember, they are paying away royalties all the time to the international name, whereas for Famous Brands they own all the IP around Steers, Debonairs Pizzar, Wimpy (for better or worse). Spur owns all the IP around Spur, Panarotti’s, RocoMamas, etc. So there you don't have the situation where it's a squeeze. I think the model that doesn't work in South Africa is to build out the regional master franchise holder. There are very few examples where it's worked. There are obviously a couple, as I reference something like McDonald's. But mostly that hasn't worked. And we've seen failed entries into the market of brands like Baskin Robbins. I don't think Dunkin’ Donuts is anywhere now, if I think about it, Domino's was the big one that really didn't work. I've got to say, Starbucks doesn't feel like it's really done much. There are a few here and there in your more premium malls, but it hasn't done particularly well. So that is a tougher model to make work in South Africa.
And just another thing that does work, and I referenced it earlier, was where you see partnerships going in place and equity investments between your scaling experts like Spur, Famous Brands, and then people who come up with a concept that just works, like RocoMamas. But it doesn't always work because Moe, you would have still been in South Africa. Do you remember Wakaberry? Wakaberry was a 2010 FIFA World cup extravaganza. Right? I mean, that's where the name came from, was the Shakira song. Those things were everywhere. Everyone wanted them. They were doing incredibly well. Again, embarrassingly, there was one in Lonehill which was probably one of the first ones. And I remember going there, but I don't think that was the first one. Famous Brands invested in that thing. Wakaberry is gone. Failed. Failed completely. So it's not a guarantee that even if one of the scale players comes in and buys one of these things that it works. And that's - maybe that leads nicely into, I suppose, the risk section of this discussion.
Mohammed Nalla: Indeed, Ghost. I mean, one of the key points to note here is that there are fads, you know, if you think of Wakaberry, it's not just the brand that was a fad around the FIFA World Cup. It's also frozen yoghurt. Frozen yoghurt was very popular, kind of rose in popularity, you had this massive success and then it kind of, pardon the pun, it melted away. And interestingly enough, if I look up here in North America, specifically in Canada, one of the fads that seem to be quite popular, you see these bubble tea shops all over the show. I think there was one in South Africa that was literally called Bubble Tea. I enjoyed that. I don't think that's actually lasted down there, but up here, you know, reasonably large Asian population, so it's popular there, but it's also moved on to other demographics. My daughters absolutely love the bubble tea.
And there you're seeing strong brands come through, but you're also seeing small, niche, individual operators come through and try and establish again, just a quality differential to some of the bigger players out there. Now, before we even move on to the risk sector here, I want to just touch on a very important point you raised because it's so interesting that if you look at the value chain in South Africa, I mean, it's a reasonably small market if you're comparing to North America, but the economics on a master franchise basis just don't seem to have worked out. You've mentioned Starbucks, for example, lots of bang and bluster around that. Very popular. And people just like to overpay for what I think is not the best coffee out there. Again, remember, I'm not buying the McDonald's coffee either, so no laughing there.
The Finance Ghost: I was about to say Moe after you referenced McDonald's coffee. You're not allowed to have an opinion on coffee anymore, but nice try.
Mohammed Nalla: I go to independent coffee shops and that's half the story of why....
The Finance Ghost: Thank goodness!
Mohammed Nalla: …some of these QSRs in the coffee space maybe struggle a little bit. But the point I want to land on here is that either you own the IP, but if you're sitting in the middle there and you've got to pay that IP through to an international producer or an international partner, that doesn't make sense. It's maybe why some of the independents have done so well, but it's also because of the regionalisation. I mean, for example, if I look at Krispy Kreme, my daughters love Krispy Kreme donuts. The Krispy Kreme experience down in South Africa is, in my view, vastly superior to the experience I have here in North America. Now, that's strange, but again, it's because I'm a South African. Our palates are really aligned to the types of donuts they produce in Krispy Kreme down in South Africa versus the ones they have here in North America that are just too sweet for our taste, for example. So, you've got to be very nimble, even if you are an international operator. It reminds me of the story where McDonald's in France, if you go there, they've got little macarons, they've got the blue cheese stuff that’s on there.
The Finance Ghost: Blue cheeseburgers!
Mohammed Nalla: Blue cheeseburgers! So yeah, if you're an international operator, you've got to be really sensitive to the local palate in order to make that work. And if you don't do that, if you're not nimble enough, you're setting yourself up for failure. Ghost I'm going to pause there, I want you to go into the risks and then where I want to land on as we round up the show is I like my classic leaderboard. Who are the top performers, worst performers over different time buckets. Don't go and Google now because we've mentioned a lot of names in the international space. Let's maybe have you talk about the risks first and then we can end off on: what does the international market look like? Because in South Africa it's really thin. You don't have many listed opportunities, like you mentioned – Spur, Famous Brands. Internationally, there's a long list where you can actually get exposure at the top of the respective brand value chain, if you want to call it that. But down in South Africa, a lot more nuance, a lot more of a niche market, right?
The Finance Ghost: Yeah. I'll tell you what was not really thin was me after the first time I went to Italy several years ago and had the best milkshake of my life at a McDonald's in Italy. It was in Torino, I remember it to this day. So talking about local menus, local ingredients, Moe, that was - and don't “at me” with your American coffee, this is Italian ice cream.
Mohammed Nalla: I can't comment on coffee. You cannot comment - You cannot comment on Italian milkshakes if you're buying it at McDonald's right?
The Finance Ghost: Italian ice cream Moe, it's not as great at the gelato, obviously, but it was very, very good. Maybe it was just a very hot day.
Anyway, moving on into the problem for this model is the first one is the health trend. So, joking about milkshakes, etc. Again, this is why Kauai is doing so well somewhere like South Africa. So what's happening overseas, especially the markets where a lot of people are now using these GLP-1s. These are appetite suppressants. So what would happen is historically they would go and buy fast food as a bit of a pick me up or a fix or a stress-eat and then obviously just a meal solution as well. But if you've got an appetite suppressant in your system, the meal solution suddenly is quite different actually because you're eating way less so you know you're going to go and waste a portion of that meal etc. So you've got changing consumer preferences here, and they're changing quite quickly.
Another disruptive force here is delivery channels. Stuff like Uber Eats, for example, Mr. Delivery in South Africa. What this is doing is it's making it a little bit less important where a business is located. In fact, you've even had this upswing now in dark kitchens. If I go on the app and I can buy a high quality meal solution at a much cheaper price than some of these brand names because it's being prepared in a dark kitchen where there is basically no brand - that works, it really does. And that's why a lot of these names are trying to get people to order directly on the app, offer better prices, etc. Order through us. I've tried it a few times with brands like Nando's here in South Africa. I mean, there's another South African great, great business story is Nando's. It does work, but it is just so much easier to go on the Uber app. And then often there's promos - and again, those promos are coming out of the margins of these stores as they desperately try to get noticed. So, just having a good road front doesn't get the job done anymore and that's changing things.
Another thing that's changing things is I can go onto my Sixty60 app or any of the other grocery stores now, and within an hour I can have something at my door, a lot of which can be convenience meals, which works out much cheaper than a lot of these fast food places and certainly considerably healthier. That's another disruptive force.
Another disruptor or another issue potentially is just the lack of a destination-type experience for most of these plays. So that's why I like something like Spur. You can take the kids, they have a massive play area. As a parent, especially of young kids, you just also need to get them out the house sometimes. The Spur food is fine. Is it great? No, definitely not. RocoMamas is much better, for example, for the kids, I love it, they love it - but there's no play area. You go to Spur, there's a big play area. It's a destination experience. They have a ball. And that is half the battle won when you're talking about 2-year-olds, 3-year-olds, 4-year-olds.
Another issue has been bad deal making. This is a sector where you do tend to see acquisitions. Acquisitions - often people overpay, they get too excited, they get too hot for the deal and that can lead to destructive activity around return on capital.
So there are a lot of factors that can impact performance in this space and it is a tough one to invest in. And historically they've had some big multiples in this space. I think there's been a general coming down to earth for some of these names. As I say, Spur and Famous Brands currently both trading on an 11x P/E. That's lower than a lot of the clothing retailers in South Africa. It's certainly lower than the good grocery stores, for example. So, it's lower than retail. That's where we are now. These fast-food businesses are trading at P/Es that are below the average retailer in South Africa. And I think that's pretty interesting.
Mohammed Nalla: It's very interesting. And what's more interesting is, if you look at those P/Es down in South Africa, that's at a significant discount to what you can buy some of the big international brands on now. Again, maybe different growth stories, different size of market, but just pay attention to how much you're paying for exposure to a specific stock or a specific theme or a specific company.
Ghost, I'm going to wrap very quickly on this and I'm going to ask you to guess. I've used two timeframes, a one-year and a five-year. And the reason for this is I highlighted right at the start of the show how different brands have actually performed very differently within those longer time periods. So over one year, if you were to guess what is the best performing QSR? Our subset, I mentioned some of them. We've got Chipotle, because we've just covered that. We've got McDonald's, you've got Yum Brands, QSR, which is Restaurant Brands International, Wingstop, which is the meme stock. We've got Shake Shack, we've got Domino's and we've got Starbucks because you think Starbucks coffee is really fantastic over one year. Take a guess. Best performing share price in that subset.
The Finance Ghost: Definitely wouldn't say Starbucks coffee is the most fantastic. It's just good compared to McDonald's. But I doubt it's the best performer because they have lots of exposure to China, which is not necessarily what you want. I'm going to go with something outlandish like Shake Shack as some kind of North American up-and-coming, maybe-they've-managed-to-scale-into-a-successful-outcome guess.
Mohammed Nalla: Well, Shake Shack up 65%. Pretty decent.
The Finance Ghost: Okay, that's a good guess. I’ll take that.
Mohammed Nalla: Pretty close to the top of the list there. So Shake Shack, the number one position, you were wrong on Starbucks though. Starbucks coming through interestingly enough in number two position, up around 23%. And if that's number two, it tells you how badly the rest of them have actually done over the last year. Now it's interesting simply because Starbucks was sold off very aggressively. A bit of low base effects that come through there. If we look at kind of the middle of the pile there, you've got McDonald's around the 15% mark and then at the lower end of the spectrum you've kind of got, Domino's Pizza, again, chronic underperformer, Yum! Brands coming through there. And then with the recent sell-off, you've actually seen Wingstop come through as a loser. And that's again based on base effect, was very highly priced. You've also got Chipotle, that's had a tough year that comes through there. So that's the reason why one year, probably not the right timeframe to look at, lots of volatility based on base effects. And that's why, let's move on to the next one for you to guess, five-year timeframe, because then this should show you: how sustainable is a brand? Which brands have actually done well over a longer period of time with all of this volatility that we've seen. What's your guess for the top performer over a five year, let’s maybe give you a top three. And then let's look at what you think the bottom performers are?
The Finance Ghost: I think over five years. And sorry, just on that Starbucks point, because actually when you drew the chart, it's amazing, if you'd ask me this question two weeks from now, they'd be flat. So basically July last year was the end of their really bad patch. But yeah, very interesting.
So over five years, look, I guess that that's a pandemic low which had a major worldwide effect. We've seen a lot of growth since then, obviously off those lows, I'm sure McDonald's has been okay. I know Chipotle would have done well regardless of the recent sell-off. Maybe something like Yum! - I feel like global exposure would be what you want over that period. You're going to tell me I'm horribly wrong.
Mohammed Nalla: So interestingly enough, given the strong rally you've seen in Shake Shack, they take the number one position over five years as well. So that's interesting for me. But what is more interesting is despite the massive sell-off you've seen in Chipotle, just given the strong performance over five years, they come through in the number-two position. And then you've got Wingstop, that actually comes through there as number three. So I would say slightly behind Chipotle, but that's a bit of a tie. And then middle of the pack: Yum! Brands and McDonald's, mid-50% over the last five years. Not a fantastic return. But that's middle of the pack. Underperformers there: Domino's Pizza. People just don't like the pizza somehow. Maybe they just don't like Domino's Pizza. I don't know. QSR, that's really been a laggard. And then Starbucks really showing its colours over the longer time period, that's been a laggard, struggling firmly close to the bottom of the pack. And what do those returns look like? Well, you're looking around 20% over the last five years. Remember, a lot of these stocks either don't pay a dividend or pay a very low dividend. So even if you look at it on a total return basis, those have been the laggards. But again, just showing you how there's such a range and diversity that's out there in terms of this QSR space, certainly very interesting.
I'm going to look at some of those South African stocks that you've mentioned because just on a valuation basis, that seems a little cheap, maybe again, a product of the market they operate in. But for me, some of the big US players arguably finding some of the pressures coming through there. Lots of volatility, but certainly a much larger market to play in Ghost.
The Finance Ghost: Yeah, look, if I had to pick one of the SA names, it would take me a nanosecond to pick Spur. And maybe a nice place to finish off is I actually did a little poll earlier in prep for this. So I asked people with Famous Brands and Spur both on a P/E of roughly 11x, which one would you choose if you had to pick one? Interesting result. Spur, 63% and Famous Brands 37%, which I think is the right answer, for what it's worth, I would also pick Spur. So that's a nice place to leave it. Moe, on your next trip to SA, come and visit Spur. And please, for goodness sakes, can we take you to buy decent coffee.
Mohammed Nalla: Decent coffee. And for you, decent milkshakes. Maybe come up here, we'll take you to a Shack and you can have some...
The Finance Ghost: …I will die on this hill defending that milkshake. It was very good.
Mohammed Nalla: Yeah, Ghost, I mean, that's unfortunately where we've got to leave it again. Such a big diverse market. You mentioned how Famous Brands operates as a food service business. We haven't even touched on the food service companies up here in North America where you can actually get a dedicated exposure there. But that's what we cover in Magic Markets Premium. It's a different global stock every single week. There's a report, a very detailed report, I must say, in addition to a podcast. So please go and check that out. R99 a month. We hope you've enjoyed the show. Hit us up on social media. It's at @MagicMarketsPod, @FinanceGhost, @MohammedNalla, all on X, or and find us on LinkedIn. Pop us a note from there. Until next week, same time, same place. Thanks and cheers.
The Finance Ghost: Ciao.
This podcast is for informational purposes only and is not financial or investment advice. Please speak to your personal financial advisor.
