RBD - Restaurant Brands

[Snoopy]

Noticed Starbucks on Lambton Quary by Lambton Square Wellington closed on 28 Feb 2011...

The remainder of the lease will have been written off and furniture junked. Non-transferrable franchise fees will be paid again when the same store reopens around the corner in a premesis with new style chairs and tables and fresher paint, while area managers are paid a bonus for creativity. At least that is how shareholders funds were creatively accounted for before.

SNOOPY

[Snoopy]

RBD down to $2.31 on reduced sales. However, what casual RBD observers do not recognize is that Pizza Hut is actually losing money and Starbucks is just marginally profitable. That means loss of sales in these franchises will be positive for after tax RBD profit going forwards. I expect the new FY2012 to be the most profitable ever for RBD. In the meantime I will continue to talk the share price down so that Winner, as one having wanted to buy in for so long, is able to get a nice cheap entry point.

SNOOPY

[Phaedrus]

I guess a pure chartist might be out, but this is yet another example of why you might not want to be a pure chartist.

Quite the contrary! This is yet another example of a pure chartist running rings around a pure fundamentalist!

IMO those selling out of RBD over the last month or so are either pure chartists, or insane.

Alternatively, those NOT selling out of RBD (when all those sell signals fired) were either pure fundamentalists, or insane! Which course of action was the more profitable?

RBD is another excellent example of TA working to perfection, firing off very early and accurate "Buy" signals, keeping you in for nearly 2 years as the uptrend continued, and getting you out when it ended - locking in handsome profits.

The time to buy back in to RBD will come - but right now it is in an obvious, accelerating downtrend.

[moimoi]

and not only that but the downtrend has been solidly in place all the while Westpac was hoovering up 5% of the shares.!!

[gregrday]

Hi Phaedrus

A question about technical analysis which has concerned me since I'm a bit of a fundamentalist... How do the trends you identify start in the first place?

I guess it appears to me that fundamentals don't believe in the efficient market, whereas chartists do? Or do chartists just not really care about the company itself and are content to follow the market?

I bought back in at $2.59, but I haven't seen anything that indicates my thesis ($20m free-cash-flow) is still not valid. So I'm not really concerned about the current downturn. Although there is an opportunity cost involved, I'm watching with interest to see whether the christchurch quake will have a material long-term impact.

cheers
Greg

[Snoopy]

and not only that but the downtrend has been solidly in place all the while Westpac was hoovering up 5% of the shares.!!

I am curious as to how Westpac via BT Funds, has managed to accumulate RBD (a SSH notice of 5% was just filed)while the falling OBV indicator indicates that shares are being distributed (?).

SNOOPY

[Snoopy]

I bought back in at $2.59, but I haven't seen anything that indicates my thesis ($20m free-cash-flow) is still not valid. So I'm not really concerned about the current downturn. Although there is an opportunity cost involved, I'm watching with interest to see whether the Christchurch quake will have a material long-term impact.

Buried in the Q4 sales announcement is the sentence, refering to the temporary closure of 19 Christchurch based outlets:
"Restaurant Brands has material damage and business interruption insurance policies in place for all the affected stores."
Translation: No short term effect.

Just prior to that management state
"One KFC and three Starbucks Coffee stores in the Christchurch CBD may remain closed for a significantly longer time, together with up to four Pizza Huts in badly affected suburban locations."

The three Starbucks stores are all within an easy five minute walk of each other in the CBD, and one IIRC is in the base of the Forsyth Barr building, one of the towers in which the internal stairway system collapsed. I first became aware of the Starbucks model when strolling through Sydney about seven years ago and registering that you were almost never out of direct line of sight access to a Starbucks store.

At the time this 'blanket coverage' struck me as an overkill. But I came to recognize that it was all about having near instant access to a familiar brand so that the modern city worker could get their coffee fix. I think this business model requires a certain concentration of foot traffic to remain viable. I further think that in Christchurch city, this business model may now be broken. The only Starbucks that is likely to reopen soon is the one based in the new Rotherham Street section of the Riccarton/Westfield shopping mall. I have doubts over the long term viability of that (my local) Starbucks store. The rival Coffee Culture (Christchurch based) franchised store over the road has double the footprint and many more than double the number of customers. I don't think there is a big appetite for an American coffee chain when the local competition is so good. I have also noticed that Starbucks (RBD) have not attempted to open up any more suburban mall stalls in Christchurch. Why wouldn't they if the business model works in that situation?

The eastern suburb Pizza Huts I think will struggle to fulfill their 'hot spot' always warm Pizza guarantees with the state of the Eastern Christchurch roads. Their potential market must be down by 50% too, because of the exodus of population. I am not sure what happens to lease obligations if the property you are leasing is condemned! Without the four PH Eastern outlets (New Brighton, Woolston, where are the others?) perhaps the supporting infrastructure of the business will have its critical mass compromised? However, given most of the PH goods are made on the premises to be sold on the premises, perhaps not. I would welcome remarks from anyone who has a better insight on this side of the business than I do! Pizza is still a tough market in Christchurch as evidenced by the shuttering of the 'Big Pizza' group of stores in teh last few years.

The long term 'worst case' would be for RBD is close down Starbucks in Canterbury, and sell off any of the remaining Pizza Hut businesses that could be made viable. Once unused lease agreements were paid out in a one off hit, I would think streamlining the Christchurch business model to KFC only change would be highly profitable change to make.

SNOOPY

[Phaedrus]

I am curious as to how Westpac via BT Funds, has managed to accumulate RBD (a SSH notice of 5% was just filed) while the falling OBV indicator indicates that shares are being distributed (?).

Whatever buying Westpac were doing was insufficient to halt or even slow the downtrend.
Overall, RBD continued to be distributed in spite of Westpac's accumulation.

[Catalyst]

Appears to be a sound FY2011 result, as flagged by the company.

My fair value range for RBD is between $2.70 - $3.05, based on today's figures and the following multiples:

PE of 10.5x = 10.5 x ($25.1m / 97.8m shares) = $2.71 (using PE of 10x = $2.63)

EV/EBITDA of 5x = (5 x $61.9m EBITDA - $11.7m net debt) / 97.8m shares = $3.05 (using 4.5x = $2.73)

Gross dividend yield of 9.0% = 17c / (9.0% x 70%) = $2.70 (using gross yield of 9.5% = $2.57)

[JayRiggs]

Time to buy back in?
KFC Double Down around the corner. LOL.