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South African firms are continuing to make inroads into UAC Nigeria, with Famous Brands being the latest to stake interest in the conglomerate.
The fast-food restaurant operator yesterday announced it had entered into strategic partnership with UAC Nigeria which allows it to acquire up to 49 percent of the quick service restaurant arm of UAC of Nigeria plc, UAC Restaurants (UACR) Limited trading under the name Mr. Biggs, to bolster its presence in Africa’s most populous country.
This comes after the 2011 sale of a 49 percent stake in UAC’s food division to Tiger Brands Ltd (TBS) of South Africa.
This recent acquisition, according to analysts, is a sign of the inherent value in the company, whereby the sum of the individual parts of UAC may soon be seen by investors as greater than the whole.
“Historically, one of the key challenges of expanding into the rest of Africa has been to source suitable local partners,” Kevin Hedderwick, chief executive officer of Famous Brands, said in a statement. “This acquisition surmounts that obstacle.”
Stuck with slower growth at home, South African companies are increasingly looking to fast-growing sub-Saharan markets.
Nigeria’s large market of 169 million people and $279 billion economy, growing at 6.8 percent per annum, is attracting interest from South African investors, especially in the food and beverage sector.
The country is an attractive destination for QSRs and future consumer expenditure is underpinned by a range of key drivers, including higher monthly income levels resulting from GDP expansion, an increase in the minimum wage (from N7,500 to N18,000), and a shift in social class demographics, with the middle class (the business’ core target market) expected to increase to 35 percent of the population in 2015 compared to 30 percent in 2009.
Significantly, this middle class comprises a large, young population with an average age of 18.
For UAC of Nigeria plc, which is a leading diversified conglomerate with operations in foods, paints, logistics and real estate, the deal may represent a step closer to a breaking up of the company into 2 or more parts as investors perceive an underappreciated value for the subsidiaries with higher growth potential.
UACN, with a market value of N105 billion, has a price to earnings (PE) ratio of 20.2 and price to sales (P/S) ratio of 1.5 times. This compares to other higher priced food and beverage companies such as Nestle with a PE of 35, P/S of 6.3 and market capitalisation of N745 billion; Cadbury with PE of 31, P/S of 4.4 and market capitalisation of N153 billion; and Nigerian Breweries (NB) with a PE of 31, P/S of 4.8 and market capitalisation of N1.2 trillion.
UACN stock price has risen by 73 percent in the past year, compared to 132 percent for Cadbury, 66.5 percent for Nestle and 17.3 percent for NB.
Famous Brands Ltd is an investment holding company listed on the Johannesburg Stock Exchange. It is an integrated food and beverage company whose primary activities include the franchising of trademarks, either company-owned or licensed, to Quick Service Restaurant franchisees and the manufacture and supply of products to these franchisees and the retail trade. Some of Famous Brands’ well-known operations already in Nigeria include Debonairs Pizza and Steers.
Speaking on the move, Larry Ettah, group managing director/CEO, UAC, said, “We are delighted to partner with Famous Brands in this venture. This is a transformative transaction which ensures UACR has the necessary strategic partner to unlock the considerable value potential in the QSR landscape which Mr Bigg’s defined 25 years ago and in which it still maintains a leadership position.
“UACR will be availed of Famous Brands’ tested and highly successful brand stewardship to enhance and reinforce the Mr Bigg’s brand market power. This deal further reinforces UACN’s commitment to ensure we collaborate and leverage international partnerships to accelerate our strategic growth and progress.”
Also speaking on the development, John Ehiguese, a brand analyst and the CEO of MediaCraft, said it is reflective of the trend of South African companies moving into Nigeria.
According to him, the world is showing interest in Nigeria as the country represents a big market and good return on investment. He sees more international investors swooping into Nigeria for similar deals.
In the recent time, more South African brands have opened offices in Nigeria. Some of them include Shoprite, Games Stores, MassMark, Nando, Woolsworth and others in the retail market.

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