RBD - Restaurant Brands [Archive] - Page 6

meesham

06-12-2009, 09:28 PM

Yuck! No thanks. I prefer my arteries uncloggod!!

But plenty of others don't which is great for the RBD shares I own. Buying a whole lot back in June seemed like a good idea. Pasta was new. Pizza Hut was being turned around. YUM were playing nicer.

Glad I went with it. Excellent capital gain since then, and RBD are a good income stock.

So, no KFC for me thanks but I shall certainly encourage others (especially those I don't like) to buy plenty. All I need to do now is invest in a company that benefits from heart disease. Any ideas?

I'm the same, about 20% of my portfolio is RBD but I don't eat KFC or Pizza Hut, and can't stand the Starbucks coffee :) I first got in earlier this year when it was around 90cents (and accumulating more along the way) and consider it one of my safe holdings, and while I have stops set as usual, it's no where near the current SP.

Snoopy

14-12-2009, 02:50 PM

Yuck! No thanks. I prefer my arteries uncloggod!!

But plenty of others don't which is great for the RBD shares I own. Buying a whole lot back in June seemed like a good idea.

I am pleased to see at least someone else on this forum 'gets RBD' Emearg.

The attitude of the detractors here is akin to not buying a share like 'Steel & Tube' because they could never envisage themselves taking their prized SUV down to 'Steel & Tube', folding down the seats and putting a huge steel girder in the back. As long as the target customers -construction companies- are buying the steel it matters not a jot that you as a small shareholder aren't doing it.

Going back to RBD, I doubt if there is very much crossover between the shareholder base, as represented by those on this forum, and where the biggest RBD customers come from. But just because *we* aren't heading down to the local KFC every week, doesn't mean that we shouldn't be buying RBD shares

Pasta was new. Pizza Hut was being turned around. YUM were playing nicer.

I tried out the Tuscani pasta (the meatball one) for the first time last week. I wouldn't recommend it as a stand alone meal it itself. But pick a few lettuce leaves out of the garden, add in a fresh tomato, some radishes and an avacado to complete a salad and you actually get quite a decent feed. And the foccaccia breadsticks were a nice accompaniment.

What is more I don't think my arteries were clogged up one bit by my RBD pasta dining experience!

Glad I went with it. Excellent capital gain since then, and RBD are a good income stock.

Did you see today's First NZ Capital analyst Sarndra Urlich's valuation update on the sister sharechat website?

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Restaurant Brands' latest profit upgrade suggests the recent sales momentum from the KFC business has caught even the company by surprise, says First NZ Capital analyst Sarndra Urlich.

"There is continued evidence that the traction from the already transformed stores is real and long-lasting," Urlich says.

"Add to that a further 30 transformed stores over the next few years and Restaurant Brands could very well enjoy further ‘super growth' from the KFC brand."

Urlich has upgraded her forecast earnings for the year ending February 28 from $16.2 million to $18.2 million and her 2011 forecast from $17.1 million to $19.1 million.

"The reasons for not buying Restaurant Brands in the past are long gone (including no revenue growth, aggressive gearing, ongoing profit warnings etc.)."

Urlich says she doesn't believe the reason for recent growth is purely a function of the ‘buying down' phenomenon during a recession. "Restaurant Brands is also reaping the benefits of effective management and has every chance of further surprising on the upside."

She has upgraded her valuation and 12-month target price for the shares from $1.57 to $1.84 and says she believes "it is not too late to jump on board, notwithstanding the stellar performance of the stock since the beginning of 2009."

BROKER CALL: First NZ Capital rate Restaurant Brands as outperform.

---------

I have been considering taking some of my capital out of RBD, not because I don't believe in the company, but because I have done so well it is making my NZ portfolio look out of balance. However, when I look at alternative places to put my money, I still haven't found anywhere better than RBD. So I have decided that my RBD capital is staying put. The RBD dividend story on its own is hard to beat and any capital growth we get as a result is just a bonus.

With 97.1m shares on issue and an $18.2m profit in FY2010 now possible, that means earnings per share of 18.7c. At a target share price of $1.84, and with further growth to come, we are still looking at a PE ratio of under 10!

No wonder Sarndra Urlich sees RBD as an outperform with the share price sitting at $1.57! And none of this takes in the possibility of some form of capital return as Pizza Hut outlets are sold off! We know there are better companies than RBD on the NZX. But is there any share on the NZX with better *prospects* than RBD - from an investor perspective at today's prices?

RBD does seem to me the obvious place to put your money. That is why I am overweight in it and intend to remain so.

SNOOPY

discl: hold RBD

Zito

15-12-2009, 01:43 AM

Appreciate the analysis Snoopy, reasoned as always and right on the mark from where I'm sitting.

Like you I am overweight in RBD pretty much for the same reason that you are. I have looked around the NZX for a company which is cheaper, with a greater potential to surprise on the upside, and with a better risk profile, and have come up short.

Unlike you I am a recent addition to the share register (this year) but become increasingly confident that it is a good place to park my money for as long as the current direction is maintained.

All three brands have had their challenges over recent years, and I wonder whether investors are a bit gun-shy of RBD given its history of providing unexpected nasty surprises to the market ( for want of a better expression!)
Maybe this could explain the apparently low multiple it is trading on, and given the bullish attitude of management and analysts towards KFC especially, a few more surprises to the upside may see a more deserving PE in time as the stock gains further credibility.

Snoopy

15-12-2009, 09:27 AM

Unlike you I am a recent addition to the share register (this year) but become increasingly confident that it is a good place to park my money for as long as the current direction is maintained.

All three brands have had their challenges over recent years, and I wonder whether investors are a bit gun-shy of RBD given its history of providing unexpected nasty surprises to the market (for want of a better expression!)
Maybe this could explain the apparently low multiple it is trading on, and given the bullish attitude of management and analysts towards KFC especially, a few more surprises to the upside may see a more deserving PE in time as the stock gains further credibility.

Welcome aboard the share register Zito. I think the current direction will be maintained until the KFC transformation process is complete, which might take 8 - 10 years. The problem is the NZ market is only so big and we all know what happened when RBD sought to export their pizza expertise (sic) to Victoria!

Once the KFC revamp is bedded down, I will then start to get worried over what hair brained direction the company will take off in next! At least at the moment the board and senior management have plenty to do -thank goodness. It is when board and management start to get itchy and look for other ways to express their err -talents?- that we shareholders should start to worry again.

Because of the constraints of those NZ borders, I think that when KFC is brought back to its revamped 'normal sales level' then the company should trade on a PE of about 10. A PE of 10 is appropriate for a company with modest growth potential I think. I take your comment Zito, about looking around for better value on the NZX and not finding anything. But I am wary that this might mean the PE of the rest of the market might move back towards around 10, rather than the alternative scenario of the PE of RBD being revised upwards to market norms.

I am sure you are right again Zito that there remains plenty of market 'baggage' associated with RBD that is going to be hard to shake. But over recent years they have a new CEO, a new chair on the board and are getting rid of their troublesome assets. How much change do they need to show? I suspect that by the time the sharebuying public wake up to RBD, the full recovery potential will already be built into the share price.

SNOOPY

Scuffer

15-12-2009, 02:10 PM

More stores will open as time goes on the population of NZ is increasing at a fair rate for a small country.

emearg

15-12-2009, 02:55 PM

More stores will open as time goes on the population of NZ is increasing at a fair rate for a small country.

And a certain ethnic group who tend to like KFC very much, tend to have more children than some other ethnic groups. So given time, the portion of the population who likes KFC will increase. For long term holders of RBD shares that isn't a bad thing...

BRICKS

15-12-2009, 03:33 PM

And a certain ethnic group who tend to like KFC very much, tend to have more children than some other ethnic groups. So given time, the portion of the population who likes KFC will increase. For long term holders of RBD shares that isn't a bad thing...

Could you please explain your comment have only noted mixed ethnic groups at my STORE..

emearg

15-12-2009, 05:32 PM

Could you please explain your comment have only noted mixed ethnic groups at my STORE..

There is no doubt that a broad range of ethnic groups go to KFC, and I see no reason why that won't continue

My comment is about future population growth and how some of the fastest growing groups like KFC.

If in doubt look at New Zealand's population projections and/or talk to Restaurant Brands about their most popular KFC stores.

My comment is based on information that was made available informally at an AGM several years ago. It is interesting what you can learn in a chat over a cup of Starbucks coffee and a slice of Pizza.

BRICKS

16-12-2009, 11:01 AM

There is no doubt that a broad range of ethnic groups go to KFC, and I see no reason why that won't continue

My comment is about future population growth and how some of the fastest growing groups like KFC.

If in doubt look at New Zealand's population projections and/or talk to Restaurant Brands about their most popular KFC stores.

My comment is based on information that was made available informally at an AGM several years ago. It is interesting what you can learn in a chat over a cup of Starbucks coffee and a slice of Pizza.

SO its not fact at all just your cosy CHAT..

emearg

16-12-2009, 11:28 AM

SO its not fact at all just your cosy CHAT..

Are you suggesting a chat can't contain facts?

BRICKS

16-12-2009, 02:35 PM

Are you suggesting a chat can't contain facts?

That is crap about nothing that is REAL FACTS..

emearg

16-12-2009, 02:56 PM

That is crap about nothing that is REAL FACTS..

You may suggest whatever you want.

I have made a statement based on population trends and informal comments at a AGM. You don't believe it. That is fine with me.

Others can make up their own minds.

That is all I have to say about this matter!

BRICKS

16-12-2009, 04:15 PM

You may suggest whatever you want.

I have made a statement based on population trends and informal comments at a AGM. You don't believe it. That is fine with me.

Others can make up their own minds.

That is all I have to say about this matter!

INFORMAL comments are not worth the paper they are written ON..

BRICKS

23-12-2009, 04:39 PM

DINED in for lunch and it was full and contrary to Mr emearg the crowd was mostly from
the White Tribe with there discount sheets going hammer and TONG..

BRICKS

28-12-2009, 03:25 PM

AT Levin the KFC was deliberate fired upon and now out of action with the police chasing the baddies ?, but puts a unite out of action for some time lucky the KFC is in full flight at the moment and with profit rising wont be effect to much properly get built in the new style
but this is always a prob when you run a Biz so security just like airlines will become another EXPENCE..

PhaedrusFollower

21-01-2010, 02:44 PM

RBD are at $1.77 today...By my calculations they have been in an uptrend since Jan 22nd 2009.

They have recently broken a 5 year high....

Everyone (Warehouse Thread) are talking them up..i've been in and out of them twice, and am considering getting back in...but the classic dilemma of "is the run about to finish" is daunting me...

The chart says...RBD in uptrend...but I'm still not great at determining STRENGTH of uptrend...

Any views/thoughts/criticisms/help greatly appreciated.

Grazie

PF

BRICKS

24-01-2010, 04:59 PM

percy

24-01-2010, 06:08 PM

Latest at Levin store is still CLOSED..

Fowl news,bricks.

Phaedrus

24-01-2010, 10:36 PM

I've been in and out of RBD twice, and am considering getting back in...If you are beating simply "buying and holding" RBD, then I would advise you to continue on with your trading system. RBD is now technically "overbought" so this is definitely not a good time to buy.

....but the classic dilemma of "is the run about to finish" is daunting me...We don't know when or where the run will finish. All we really know is that the uptrend is still strong and as yet there is no technical evidence of any weakening.

The chart says...RBD in uptrend...but I'm still not great at determining STRENGTH of uptrend...The chart below plots a selection of technical indicators. While these are all quite conservative, none are showing any obvious weakening of the uptrend as yet.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD124.gif

PhaedrusFollower

25-01-2010, 10:43 AM

Thanks very much P,

Since it is overbought...I will stay out and wait for the next dip.

Appreciate the chart and the additional indicators.

Will watch and learn with interest.

PF

brettdale

25-01-2010, 01:03 PM

As long as KFC slaes keep shooting up, RBD will do well.

Snoopy

27-01-2010, 12:42 PM

Thanks very much P,

Since it is overbought...I will stay out and wait for the next dip.

Appreciate the chart and the additional indicators.

Will watch and learn with interest.

PF

I think you guys need to get a bit more savvy on what some of these indicators you guide yourselves by mean. From Wikipedia, the classic RSI indicator, where a value of 70 indicates overbought and a value of 30 indicates underbought is defined thus:

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For each trading period an upward change (U) or downward change (D) is calculated. Up periods are characterized by the close being higher than the previous close,

U = closenow − closeprevious
D = 0
Conversely, a down period is characterized by the close being lower than the previous period's (note that D is nonetheless a positive number),

U = 0
D = closeprevious − closenow

If the last close is the same as the previous, both U and D are zero. An average for U is calculated with an "exponential moving average" using a given N-period smoothing factor, and likewise for D. The ratio of those averages is the Relative Strength,

RS= [EMAU (period of n days)]/[EMAD (period of n days)]

This is converted to a Relative Strength Index between 0 and 100.

-----------

With 'n days' set at 200 days, as Phaedrus appears to have done, what 'overbought' means is that considering previous 200 day intervals as 'rolling windows of interest', with a weighting towards the most recent price action, there have been a lot more up periods than down periods. Using the logic that 'nothing goes up and up forever' you might conclude that the longer the share price gets stronger, the more the likelihood of a significant fall. That statement has an appealing truth about it. But what the statement does not mention is that there is no consideration given to the absolute value of the 'start point' of all this share price action.

That means a share with an underlying PE of 10 that sees a share price rise due to earnings increases that still leaves it with a PE of 10, will likely have a similar RSI to a share price that reflects a PE of 15 rise due to earnings increases that still leaves it with a PE of 15. Yet there is a difference in these two cases. A share with a PE of 15 needs earnings growth to justify that share price. And a share with a PE of 10 (like RBD) does not.

Thus IMO, it is not accurate to say that a share like RBD is overbought because of an indicator like RSI, without considering the fundamentals of the company. Phaedrus's chart indicates that if we believe the long term trend line, then perhaps $1.30 would be a good entry point. I would agree with that. But the question you need to ask as an investor is, how likely is it that such an investment opportunity will present itself? $1.30 represents a projected operational PE of 6 or 7 or something. With a company that is performing as operationally strongly as RBD, I can only say 'good luck' if that is what you are waiting for.

SNOOPY

discl: hold RBD

Phaedrus

27-01-2010, 03:47 PM

Snoopy, the chart as posted was prepared for the sole purpose of providing holders with EXIT signals when RBD's weakens and ends. It was never meant to provide an on-going series of ENTRY signals for those that missed out on the Buy signals back in February - hence the absence of any Buy (or Sell!) signals during the course of this splendid uptrend. Longterm holders are interested in the main uptrend and are unconcerned by minor fluctuations so any indicators used should not be too active. You don't want them signaling an exit every time the uptrend eases a little. This is accomplished by using longer time periods.

From Wikipedia, the classic RSI indicator, where a value of 70 indicates overbought and a value of 30 indicates underbought. (OverSold)Right - that is the classic RSI. Here I have de-tuned the RSI and made it less sensitive by increasing the time period. You should also note that OverBought/OverSold thresholds are not even marked on the plot. The 50% crossover point is used to generate signals. This is fairly common practice with slower indicators.

No consideration is given to the absolute value of the 'start point' of all this share price action.Right. That is why it is called the RELATIVE Strength Index. It measures the internal strength of a stock against itself, so we can easily see any change in strength - whether RBD's uptrend is getting (relatively) stronger or weaker.

IMO, it is not accurate to say that a share like RBD is overbought because of an indicator like RSI, without considering the fundamentals of the company. A distinction is usually made by referring to such a stock being technically overbought.

Phaedrus's chart indicates that if we believe the long term trend line, then perhaps $1.30 would be a good entry point. Snoopy, I repeat, that trendline was there to provide EXIT signals when the uptrend weakens. It, like all the other indicators featured, was NEVER MEANT to identify "good entry points".

With a company that is performing as operationally strongly as RBD, I can only say 'good luck' if that ($1.30) is what you are waiting for.You miss the point completely, Snoopy, because you misunderstand the aim of that chart. IT IS FOR EXIT PURPOSES ONLY.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBDshortterm127.gif

A different chart is required for traders or any latecomers wanting entry signals. As shown here, it could use the same indicators, but with very different parameters of course. Here is such a chart, using the default values for each indicator. You will see that 26 buy signals have been triggered since the initial Buy signals featured in the former chart - most all of them pretty good entry points. There will, of course, be more if/as/when RBD shows transient weakness. No-one would wait for a nominal "$1.30" entry that may well never come.

Note how the RSI default period of 14 days has failed to give a single buy signal so far. It is too insensitive to provide any ongoing RBD entry signals. This is easily remedied by using a shorter period (in this case 6 days) which has provided a good selection of very timely entry signals. Too many signals? Use a longer period. Too few signals? Use a shorter period.

Snoopy, from even the most cursory glance at this chart you should be able to see that buying RBD when it is technically "OverSold" gives MUCH better entries than when it is technically "OverBought". That is why PF quite sensibly said "Since it is overbought...I will stay out and wait for the next dip."

I must confess Snoopy, that I thought you were "a bit more savvy on what some of these indicators mean"!

Snoopy

30-01-2010, 12:06 AM

Zito

30-01-2010, 04:00 PM

Snoopy:

"If the share price dropped below $1.30 then the trend would have ended. To the technical analyst that would be a sell signal."

Not entirely correct. A trendline break does not in and of itself constitute the end of an uptrend. An uptrend is defined as a series of higher lows and higher highs. It is quite possible (and common) for an uptrend to continue despite a trendline break sell signal. For this reason a trendline break should not be used in isolation by technical sellers as an exit strategy.

Lizard

27-02-2010, 08:28 PM

Lagging the share price... but the family have switched back to Pizza Hut as "takeaway pizza of choice". Couldn't believe the difference in their pizza's. Guess they finally figured out how to make a pizza that has flavour

Balance

28-02-2010, 09:23 AM

BRICKS

04-03-2010, 11:17 AM

SNOOPY is that $2 on the board whats happening how long do we stay or collect the DIV.. where is Mc Duck..

Snoopy

04-03-2010, 11:25 AM

A good example of a turnaround story and following the directors and management.

Buy when they are buying - they were loading up with shares when there were plenty of doubters still about.

Perfect timing.

This is the 'turn around' that shows no sign of turning around. Shares are up 8c to $1.90 today. But already there are buyers at $1.92 and no sellers at all under $2. I also hadn't noticed up until today that Brian Gaynor's Milford Asset Management has appeared as a substantial shareholder, as of late January. All good stuff. It will be interesting if the upcoming quarterly sales announcement justifies any of this price action. Perhaps there is a bonus dividend on the horizon with the selling off of some of those Pizza Hut franchises to 'Joe Kiwi Manager'?

SNOOPY

discl: hold RBD, no plans to sell down yet.

Snoopy

04-03-2010, 11:31 AM

SNOOPY is that $2 on the board whats happening how long do we stay or collect the DIV

Mystery solved Bricks..

----------

FORECAST: RBD: Profit Upgrade Announcement

4 March 2010 NZX

RESTAURANT BRANDS FORECASTS ANNUAL PROFIT UP 67% TO $19.5M

A combination of stronger than expected trading over the last quarter of the year (especially from its KFC stores) and the successful resolution of a pricing review with a major supplier has meant that the company will deliver a trading result ahead of previous expectations for the year. Restaurant Brands now anticipates its full year net profit after tax (excluding non trading items) for the year ended 28 February 2010 will be in the vicinity of $19.5 million (20 cents per share). This will represent an improvement of $7.8 million or 67% on the prior year's result.

The annual profit announcement will be made on 7 April 2010.

----------

EPS of 20c per share means that at anything under $2.00, the PE is still under 10! Despite the share price rise, this is *still* looking to be the cheapest share in my portfolio. Amazing stuff!

.. where is Mc Duck..

Probably frying his head in one of those KFC chicken vats by now I would imagine....

SNOOPY

Balance

04-03-2010, 11:54 AM

SNOOPY, I told you a great number of years ago that RBD is a dog. You have argued the point buying more, and more, of something worth less and less. We are now heading into a recession, with your investing style setting you up to losing the lot. Any one with half a brain wont swim against the tide, you wait until the tide turns, then swim with it.
RBD sold its kennel for an overseas trip, then leased the kennel back which was a huge mistake as i told you at the time.
They followed that by spending huge ammounts doing the kennel up. The bad times are upon us they pay leases when they might have been mortgage free if they had stuck to their knitting. The best way to expand a business is pay the mortgage off first, this can be used to borrow cheaper money for further expansion.
In the bad times the business is in a good position to compete being rent free. RBD are now in a very bad position, owning nothing, with the bad times now upon us. All you have to do is think back to the last time you heard a kid ask to go to a RBD restaurant. I cant think of one can you?. Macdunk

When it's all dark out there and everyone is scared, that's the best time to pick up the bargains.

Phaedrus

04-03-2010, 03:30 PM

When it's all dark out there and everyone is scared, that's the best time to pick up the bargains.NO IT'S NOT! That's what Snoopy thought he was doing when he kept buying into RBD's long downtrend, "topping up" with "bargains" at $1.75, $1.60, $1.30, $1.26, $1.24.............
The best time to buy is when the long slide eventually stops and begins reversing. When the first light of dawn tells us that the long dark night is over! When technical indicators that have not triggered for years start firing off Buy signals.
Even MacDunk understood this simple concept - as he quaintly put it "Any one with half a brain wont swim against the tide, you wait until the tide turns, then swim with it."

Snoopy

04-03-2010, 05:18 PM

NO IT'S NOT! That's what Snoopy thought he was doing when he kept buying into RBD's long downtrend, "topping up" with "bargains" at $1.75, $1.60, $1.30, $1.26, $1.24.............
The best time to buy is when the long slide eventually stops and begins reversing.

Yes I did buy RBD at all of those price levels. But I did keep on buying at lower levels as well. And that means my average entry price is now $1.02. You can call my strategy for RBD 'sub optimal' I suppose. But in this case 'sub optimal' means an enormous outperformance of the NZX40/50 over a thirteen year period. If someone did better than I did, well good on them. But as far as I am concerned my purchasing strategy has delivered - and then some.

The best time to buy is when the long slide eventually stops and begins reversing.
When the first light of dawn tells us that the long dark night is over! When technical indicators that have not triggered for years start firing off Buy signals.

I can't argue with the theory. But the question is how many traders actually did that (apart from you Phaedrus). Most of the other traders seemed to delight in dismissing RBD. Then when the trend turned, they were so poisoned of thought that they missed the huge ride upwards in what was in terms of my thirteen year investment horizon (so far) was a very narrow window. The way RBD has recovered now even 'buy and hold' from listing (which is not a purchasing strategy I advocate) is starting to look good.

I have to admit being surprised at the RBD recovery, at near to $2. I didn't pick it. But my purchasing strategy assured that I was there anyway.

SNOOPY

Footsie

05-03-2010, 04:44 PM

well done to all who bought... 3 profit upgrades in 6 months. amazing... 55c to 195
this is the kind of story we all want to land every year.

i have to admit they were recommended to me a few. one of those people is actually an acquaintance who is doing time inside! plenty of time to think.
at the time i pretty much laughed....

seems others are having the last laugh. I wonder if maybe WDT might be a potential dog to star for 2010?

Steve

07-03-2010, 07:09 PM

The Dunedin North KFC has reopened this weekend after its upgrade. Just in time for all those students to trash...

Lizard

13-03-2010, 06:46 PM

After a 2+ year break, just tried to order delivery from Pizza Hut again. Took the on-line route (as you do), only ended up stuck at "order submitted", since the site decided to link my address to a closed branch!

However, rang PH - and after only a one minute wait, actually got to talk to a helpful person who processed my order and filed a report re my on-line experience. The whole ordering process only took 25 mins (:eek2:) start to finish so now waiting for the pizzas...

... so, pizza's good (tick), helpful staff good (tick), web-site (oops!).

I guess from the shareholder's perspective, having "room for improvement" is not all bad?

small fish

13-03-2010, 10:55 PM

Thank the 'Burger Tower' burger I reckon, such tasty goodness. :)

Snoopy

14-03-2010, 09:21 AM

I guess from the shareholder's perspective, having "room for improvement" is not all bad?

It has always been thus with Restaurant Brands.....

RBD shares did not respond to the recent 10% profit upgrade. It did initially with the shares trading over $2, but they have now fallen back to around the $1.90 level. One reason could be that quite a number of share options have been exercised in recent weeks. It is possible that some existing management shareholders are selling down their existing holdings to give them cash to take up their cheap shares. Or it could be other shareholders are selling down in anticipation of management doing this selldown when they are finally allowed to. Or it could be that having ridden the recovery wave and booked huge profits fund managers (are there any left on the share register other than Brian Gaynor, who is increasing his holdings?) are taking profits. None of these reasons sound convincing.

Looking through the share register I see that last year South Canterbury Finance Limited owned 350,000 shares. Given their capital requirements perhaps it is SCF who are selling out and depressing the share price?

David Novak of franchise parent 'YUM brands' likens the progress of parent YUM to being in the first innings of a ten innings ball game. My contrasting metaphorical image for RBD is that they are just starting the second half of a battering and bruising rugby encounter. That is because around half of the KFC stores have been 'transformed' under the KFC refurbishment program. Having got through the first half, the fans (read shareholders) are not entirely convinced they can hold on until the final whistle....

The biggest risk for RBD shareholders is I think that the managment and board will be distracted again by going into a new venture. It is slightly worrying that in recent profit announcements nothing more has been mentioned about the sell down of Pizza Hut to private operators. Starbucks it would seem continues as an unprofitable millstone once corporate costs are allocated to that business.

So where to for KFC, I mean RBD if they get through the current bruising rugby encounter? I know that Australia has been a graveyard for them with Pizza Hut. But I wouldn't be averse to them buying up some KFC stores in Australia or indeed some of those independently operated KFC stores that they don't own in New Zealand. Perhaps they could look at acquiring an Asian fast food franchise in New Zealand, like 'Hungry Wok'? Personally I would like to see them completely out of Starbucks. If they do any of the above I would regard it as positive. If they end up having to manage more than two chains I would regard that as negative as past experience shows RBD managment are overtaxed if they have too many distractions.

Given the PE of the shares is under ten with identifiable growth to come, I have no plans to reduce my own holding. There ends my state of the nation address on RBD!

SNOOPY

discl: hold RBD

Silverlight

15-03-2010, 02:30 PM

Sell Starbucks, buy Noodle Canteen.

Steve

15-03-2010, 08:24 PM

I think that we have a Noodle Hut in Dunedin now... :)

BRICKS

16-03-2010, 09:59 AM

I think that we have a Noodle Hut in Dunedin now... :)

THERE would be a lot of oppersition from sharholders for RBD tryed to start another chain of anything Noodle or NOT..

BRICKS

16-03-2010, 12:48 PM

TODAY BRICKS wrote to KFC and remind them that the KFC was still burned down what where they doing about
a NEW store.. Had a quick reply back confirming that they would reopen on the same site and they where getting council consent process once
consent was obtained rebuilding would start and they are excited about the new store design that LEVIN KFC will have and look forward toto our loyal customers in LEVIN as soon as possible..

SO there we have it not much about a hurry that they are loseing $400,000 T/O a month or more but
Nick Thomsom still collects salary all you can do is ASK..

end with,, I hope you have a wonderful week..

chippy52

16-03-2010, 03:14 PM

BRICKS

16-03-2010, 03:46 PM

I have the documents on my desk now for pricing. Tenders close next week.

GOOD SHOW chippy will you be in the tender RACE.,GOOD LUCK.. BRICKS..

Snoopy

31-03-2010, 02:49 PM

RBD shares did not respond to the recent 10% profit upgrade. It did initially with the shares trading over $2, but they have now fallen back to around the $1.90 level.

Looking through the share register I see that last year South Canterbury Finance Limited owned 350,000 shares. Given their capital requirements perhaps it is SCF who are selling out and depressing the share price?

The biggest risk for RBD shareholders is I think that the managment and board will be distracted again by going into a new venture. It is slightly worrying that in recent profit announcements nothing more has been mentioned about the sell down of Pizza Hut to private operators. Starbucks it would seem continues as an unprofitable millstone once corporate costs are allocated to that business.

The PE of the shares is under ten with identifiable growth to come,

Something very important psychologically happened on the market today. Did the market belatedly respond to the profit upgrade of 4th March?

There was sustained buying for RBD shares at over $2, with buyers at $2.02 and sellers at $2.03. $2.03 has some significance as taking into account the 1:12 bonus issue in year 2000, this was the original issue price back in 1997. A lucky 13 years after listing those original 'buy and hold' investors have *at last* got their capital back! That doesn't mean a zero return as over those 13 long years though, for dividends have been generous totalling $1.03 per share. Those of us who mainly bought into the share later, have of course done much better.

I expect there to be a pause where some of those original investors sell out at $2.03 and another pause later where the orginal investors who are not so good at maths sell out at their original per share buy price of $2.20. After that, on expectation of all of those pizza loving poms returning to their NZ campervan hotels for the World Cup, I expect the share price to settle at around $2.40, which will give a long term PE of 12. (I expect $2.40 may only correspond to a PE of 10 in World Cup year). At that point I plan to partially sell down my rather out of balance excess RBD holding. Why am I announcing this now? So that when the share price does rise to that level you guys can remind me of what I said today and remind me to *actually do the sell down*, rather than getting carried away in some kind of World Cup fever of pizza greed!

SNOOPY

BRICKS

07-04-2010, 10:11 AM

WELL KFC the one to kick the can with an 8 cent div up to 12.5 cents the way it should have been for years like
a lot of KIWI company directors get hold of a big public company and turn it into a small public company, just
like TELECOM hoping RBD has learned a LESSON

Snoopy

07-04-2010, 10:26 AM

Something very important psychologically happened on the market today. Did the market belatedly respond to the profit upgrade of 4th March?

There was sustained buying for RBD shares at over $2, with buyers at $2.02 and sellers at $2.03. $2.03 has some significance as taking into account the 1:12 bonus issue in year 2000, this was the original issue price back in 1997. A lucky 13 years after listing those original 'buy and hold' investors have *at last* got their capital back! That doesn't mean a zero return as over those 13 long years though, for dividends have been generous totalling $1.03 per share. Those of us who mainly bought into the share later, have of course done much better.

Measured Profit result out today at $19.5m, or 20.5cps. That means at $2.03 the PE ratio is still under ten. Profit projection for next year is 'slightly in excess of $20m', very importantly with no qualification this time. That translates to profit growth of 2.5 to 5%. I think that is positive in the new RBD culture of underpromising and overdelivering.

Other result highlights:

a/ A big increase in management slurping at the trough was recorded, but this was largely offset by lower interest payments.
b/ It was good to see an improvement in EBITDA at Starbucks, even as sales declined.
c/ It was good to see the sell down of Pizza Hut back on the agenda. With trade looking up, it could be a good time for shareholders to help the transition to 'private Hut ownership'.

Full year dividend at 12.5c per share (a gross yield of 8.8% at $2.03) is well covered by earnings of 20.5cps. There is still plently of opportunity to spend those retained earnings wisely in the KFC transformation project that is still only half-way there. The Pizza Hut selldown may even produce a special dividend next year!

Measured incremental growth looks good from this shareholder's perspective. I won't be putting any of my shares on the market anytime soon. I expect a modest rise in share price today followed by a flurry of positive recommendations from brokers - all after the event!

SNOOPY

BRICKS

07-04-2010, 11:57 AM

Snoopy if we are good boys up at Paraparaumu they mite build us a NEW KFC which would be an improvement as the current one is showing ware and tare, Will be writing back to KFC again
about LEVIN store that is moving at a dogs PACE.. still NO bricks moved..

ENP

07-04-2010, 12:24 PM

There was sustained buying for RBD shares at over $2, with buyers at $2.02 and sellers at $2.03. $2.03 has some significance as taking into account the 1:12 bonus issue in year 2000, this was the original issue price back in 1997. A lucky 13 years after listing those original 'buy and hold' investors have *at last* got their capital back!
SNOOPY

Does this mean that time "in" the market is a sales pitch just like "diversification" that managed funds like to push?

Time "ing" the market, is it possible? And is it what successful investors do?

winner69

07-04-2010, 12:27 PM

http://www.filmarchive.org.nz/sellebration/view.php?id=140

GTM 3442

07-04-2010, 12:56 PM

(1) Does this mean that time "in" the market is a sales pitch just like "diversification" that managed funds like to push?

(2) Time "ing" the market, is it possible? And is it what successful investors do?

(1) Time in the market is silly. You want to be in the market during uptimes, and out of the market during downtimes. Otherwise you buy at $1, watch the price go to $2, and then watch while it goes down to $1 again. Which seems a somewhat pointless activity.

(2) You can't ever time the market exactly. But you can time it well enough to know when to get out.

After a few decades of this stuff, it seems to me that the second most important thing is to know when it's time to sell and stuff the moolah under the matress for a bit.

minimoke

07-04-2010, 01:18 PM

Well, it needs to be said. Congrats to Bricks and Snoopy for holding RBD. I've been critical in the past but they held in there for the resurrgence.

Did a bit of my own market research last week to see what all the excitement was all about - but am still missing the picuture. Tried the local Pizza Hutt with the tamarikis mates. Didn't eat the food (thats a generous description) myself but the rest managed to gobble their way through a fair amount of tucker. First impression - why can't I buy a beer or wine - this is a minimum requirement when escorting the pigs to the trough. Second impression: empty at 6.00pm / half full by 6.30. Salad bar - so thats what they call a place to store the wilted lettuce and dried pasta. Pizza = grease laden dough with unidentifiable lumps of stuff glistening on the top. Corn chips - and nothing else: why?? Dessert bar - coloured gelatine sans flavour; pik-n-mix lollies, chocolate cake and stuff which gives ice cream a new definition.

So Snoopy and Bricks. When you are off to your local, spending your dividend cheque you can take some pleaseure from the $100 I've donated to your wallets. But don't expect a repeat for another few years.

Snoopy

07-04-2010, 02:08 PM

Did a bit of my own market research last week to see what all the excitement was all about - but am still missing the picuture. Tried the local Pizza Hutt with the tamarikis mates. Didn't eat the food (thats a generous description) myself but the rest managed to gobble their way through a fair amount of tucker. First impression - why can't I buy a beer or wine - this is a minimum requirement when escorting the pigs to the trough. Second impression: empty at 6.00pm / half full by 6.30. Salad bar - so thats what they call a place to store the wilted lettuce and dried pasta. Pizza = grease laden dough with unidentifiable lumps of stuff glistening on the top. Corn chips - and nothing else: why?? Dessert bar - coloured gelatine sans flavour; pik-n-mix lollies, chocolate cake and stuff which gives ice cream a new definition.

So Snoopy and Bricks. When you are off to your local, spending your dividend cheque you can take some pleaseure from the $100 I've donated to your wallets. But don't expect a repeat for another few years.

RBD management have plans to close all of the dine in Red Roof Pizza Hut restaurants Minimoke. I guess your experience reinforces why this is probably a good idea! It is many years since I visited one of these myself, and my experience was similar to yours!

Probably the lack of beer/wine is because these dine ins don't have a liquor licence. Actually IIRC Pizza Hut Delcos did trial beer as a menu item a few years back. I don't think there was enough demand to make it work. The hard core pizza and beer lot got their slabs of cans elsewhere.

SNOOPY

Phaedrus

07-04-2010, 02:30 PM

Does this mean that "time in the market" is a sales pitch just like "diversification"?'Fraid so.

Is "Timing the market" possible?Of course it is. As GTM3442 points out though, "You can't ever time the market exactly" but of course you don't have to. Approximately right is quite good enough. ENP, I take it that you haven't read back through this thread. Click here (http://www.sharetrader.co.nz/showthread.php?3228-RBD-Restaurant-Brands&p=250974&highlight=#post250974)to see how I used TA to time my entries into RBD, starting buying at 65 cents and continuing on as each indicator triggered. By 80 cents all had fired and I was fully invested. RBD is now approximately triple my average entry price. Not to mention dividends....... You can see that there have been no sell signals triggered since buying.

Is this what successful investors do?There are many paths to success, ENP. Timing your entries and exits is very, very important, in my opinion.

Here is an update of my RBD chart and indicators :-

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD47.gif

ENP

07-04-2010, 03:06 PM

Phaedrus, do you just use technical analysis or fundamental or a mix of both?

Phaedrus

08-04-2010, 11:01 AM

I use both. Generally speaking I select my stocks fundamentally then use TA to time my entries and exits. If there is ever any conflict between the two, I go with TA.

Have you read the book "What Works on Wall Street"? The author (James P. O'Shaughnessy) found that strategies combining value and momentum work best, outperforming both technical and fundamental approaches used alone.

ENP

08-04-2010, 12:59 PM

I've read Buffetology, that's what I'm basing my investment strategies on so far. Just started reading One Up On Wall St and have got a few basic tips.

One quote I remember is never buy a stock for the reason that it's value is going up. RDB are doing much better than they were 1-2 years ago in their financial statements but it's sure going up in a hurry. Everyone needs to eat though which is good for KFC.

BRICKS

08-04-2010, 01:36 PM

WITH all the pedictions for KFC the thing that will happen is the dividend will rise to at least 14 cents in the next YEAR.. YIPPIE..

Snoopy

08-04-2010, 06:42 PM

CEO Creedy bought some more shares at $2.05 yesterday. Encouraging SNOOPY

bung5

08-04-2010, 07:05 PM

CEO Creedy bought some more shares at $2.05 yesterday. Encouraging SNOOPY

I give you this one snoopy. I remember a few years ago bagging RBD when it was below $1 on sharechat. can eat my words now... but im sticking to bagging telecom.

Brian

11-04-2010, 09:21 AM

BRICKS

11-04-2010, 10:41 AM

The reason rbd has soared is because the majority of people during this recession have eaten there. as things improve sales will drop again If you bought in below $1.00 GET OUT AND TAKE YOUR PROFIT.. iT IS UNLIKELY THAT ANOTHER ASIAN TAKEOVER WILL ARISE.

LIVE & LEARN, Brian RBD will go on for ever just like the eaters ever day there is a requirment for KFC to make a quick profit sounds good to younger people but with the ageing
processe an exerlent DIV is more important as they go on FOREVER..

BRICKS

13-04-2010, 12:33 PM

WELL tenders have been acepted for the new store and rebuilding will start shortly,[THATS NICE] and hope is all up and running by JULY.. Tomorrow is an open recruitment day so if you want a job slip along and see Nick Thomson
Mobile 021 536194 he is your man..

Statement of the month :

"As you can imagine we are excited about our new store and cant wait to be back in bisiness".

Either can RBD shareholders..

Snoopy

14-04-2010, 06:06 PM

I've read Buffetology, that's what I'm basing my
investment strategies on so far. Just started reading One Up On Wall
St and have got a few basic tips.

If that is the original Buffetology book, I think there was a mistake in the
calculations in the equity growth model spreadsheet type calculations.
It was subsequently fixed in Mary Buffett's following publications, the
Buffettology Workbook and the New Buffettology.

Still that doesn't diminish the ideas and theme of the book.

One quote I remember is never buy a stock for the reason that it's value
is going up. RBD are doing much better than they were 1-2 years ago
in their financial statements but it's sure going up in a hurry. Everyone
needs to eat though which is good for KFC.

Yes, hit $2.19 today? Still the book doesn't say you shouldn't buy a
share because it is going up either.
In fact, coming from a similar investment church to yourself ENP, I think
you need to ask whether a share is value at the market price. It may
well be value even as the price is going up rapidly if the trough it is
recovering from is deep enough! I think long term fair value will settle
at around $2.40 over the next couple of years. So not a tremendous
amount of capital gain to come, but those dividends should remain
'finger lickin'.

SNOOPY

Snoopy

14-04-2010, 06:08 PM

Time "ing" the market, is it possible? And is it what successful investors
do?

Yes timing the market is possible. But you have to ask is it practical?
And do you have the diligence to follow your system?

'Practicality' in this sense is another way of talking about liquidity, by
my way of thinking. You can study historical charts ad nauseum. But
just because a chart says that a share was available at a certain price
at a certain time does not mean *you* could have bought the number of
shares you wanted at that price on the day in question. If a share is in
the NZX50 this isn't usually a serious issue for the Mum and Dad
investor. But there are plenty of investment choices that are not in
the NZX50. I have observed that the liquidity of RBD has
dramatically improved since it entered the NZX50.
Phaedrus IIRC (hopefully he will correct me if my memory is faulty) ,
prefers to trade in blocks no greater than one third of a share's daily
liquidity. This solves the liquidity issue, but does limit the investment
horizon as well.

'Diligence' means a willingness to stick with your system and put in the
effort to make a proper go of it. Phaedrus is undoubtedly diligent. But
I remember buying some RBD in 2002 at $2.08 on the premise of a
rising trend and anticipating a successful diversification in Australia.
When the Australian venture started to prove troublesome the share
price tanked and I didn't have the stomach to sell. This taught me that
you cannot adopt 'half a system' and expect to be successful and
signalled the end of my attempts at fine timing.

If you go back to the start of this (and previous RBD) threads you will
find all sorts of posts by Phaedrus explaining how poorly timed my
entry into RBD was at $1.20, 87c, 76c etc over the years. However, in
thc cold light of today, and $2.19, you can see that all of these were in fact
good entry points. IME you can spend a lot of time timing the minutae
of entry. But if you can buy something that is cheap enough relative to
fundamentals none of this fine timing matters, *providing you have the
time horizon to wait until the market reverts to fair value*. The biggest
risk IMO is being so tied up in the timing detail that the share price
jumps and you end up not investing at all, as most readers of this
thread have done (not done?) with RBD!

The final difficulty in timing is that you have to get both the entry and
the exit point right to make it work. If you remain largely fully invested
then there are less timing decisions to worry about. There are sage
investors on this forum who have congratulated themselves on the
wisdom of their exit from 'the market'. But then they sit on the
sidelines *for years* having missed the upturn. The other problem is
that not all individual shares follow 'the market'. RBD was a drain on
my investment portfolio for years, while the market boomed. But when
the downturn came RBD went from strength to strength.

I want to conclude with idea that there is always more than one 'right'
way to invest. Phaedrus has certainly made more than me on RBD in
percentage terms if he has tripled his capital. My RBD capital has
'only' doubled. But as a trader, Phaedrus has to pay tax on his share
gains. Whereas as a dividend investor I do not. So I would wager
that our respective 'after tax investment performance' with RBD is
almost identical to date.

SNOOPY

Zito

14-04-2010, 09:19 PM

Snoopy IIRC Phaedrus buys shares on the NZX for the *purpose* of obtaining dividend income from them, so I would expect his capital gains to be non-taxable. He simply times his entries into such stocks based on sound technical analysis, thereby maximising his chances of picking up a capital gain along the way. For the most part I do the same thing, probably on a smaller scale but I would guess with similar rationale and results.

BRICKS

16-04-2010, 12:08 PM

Snoopy RBD hits $2.31 today not far of your $2.40 call with showing a profit of 156% have the feeling to reduce 25% to enjoy current PROFITS..

ENP

16-04-2010, 12:21 PM

The biggest
risk IMO is being so tied up in the timing detail that the share price
jumps and you end up not investing at all

How do you overcome this problem Snoopy?

Thanks.

mr.needs

16-04-2010, 02:07 PM

How do you overcome this problem Snoopy?

Thanks.

Well the easiest way would be to not worry about timing the market at all, and instead purchase a fixed dollar amount of shares at regular intervals.

Its called dollar cost averaging. With the fixed $$ investment, you end up purchasing more shares when the SP is lower. Hence reducing your average cost.

Snoopy

19-04-2010, 10:22 AM

Snoopy RBD hits $2.31 today not far of your $2.40 call with showing a profit of 156% have the feeling to reduce 25% to enjoy current PROFITS..

Am having similar feeling Bricks. However I will hang out for $2.40 myself, as this is only a PE of 12 with half the KFC refurbishment growth still in the pipeline, excluding any capital repaymentrs from Pizza Hut sales. Also that big 8c divvy is coming up!

SNOOPY

h2so4

23-04-2010, 11:44 AM

Snoopy Hi I would be interested to know, if you could please explain how you arrived at a fair value of $2.40 for RBD.

Snoopy

23-04-2010, 02:22 PM

Snoopy Hi I would be interested to know, if you could please explain how you arrived at a fair value of $2.40 for RBD.

My valuation is a bit 'back of the envelope' h2so4.

$2.40 represents a PE of 12. With a utility type company (Yes I regard food as a quasi-utility) and low to no growth prospects I think a PE of 10 is about right (look at Telecom). With almost all of RBDs profits coming from KFC and the restaurant transformation program only half done I think there is plenty of growth left. However I do expect the growth to be steady not spectacular. I think a PE of 12 is appropriate for steady growth.

SNOOPY

Snoopy

23-04-2010, 02:25 PM

$2.40 represents a PE of 12.

There is a bit of an upside to my valuation if various Pizza Huts are sold at a good price. So I won't be selling out at $2.40. Just reducing my holding as my spectacular success with RBD means my portfolio is looking a little unbalanced. All I am saying is that I find it hard to conceive of a situation going forwards where RBD shares are worth less than $2.40. $2.40 is in effect my fair 'bottom of the barrel' valuation.

SNOOPY

h2so4

23-04-2010, 02:39 PM

Just reducing my holding as my spectacular success with RBD means my portfolio is looking a little unbalanced.

SNOOPY
..................hey things could be worse:)
Rbd has had a spectacular year, more money this year than the last 3 combined, and it appears to me to be business as usual. How much growth do you expect going forward 6%,9% maybe 12%?

ENP

23-04-2010, 04:05 PM

Snoopy

23-04-2010, 05:36 PM

Rbd has had a spectacular year, more money this year than the last 3 combined, and it appears to me to be business as usual. How much growth do you expect going forward 6%,9% maybe 12%?

I think that going forward from here, RBD might get 5% earnings growth on average compounding over the next eight to ten years. By that stage I expect the PE to reduce to around 10, so we could be looking -long term- at an RBD share price of around $3.10. If you ask me what will happen specifically in FY2011 or FY2012, that is much harder to predict. 5% average doesn't mean 5% every year! Considering what happened during the last Lions tour we could hit 5% in FY2011, 10% the year after and a flattening off after that.

SNOOPY

Snoopy

23-04-2010, 07:47 PM

So Snoopy, if you invest in companies such as Restaurant Brands/KFC for their dividend (and capital gain also, but primarily for their dividend) what % dividend yield would you expect as a minimum? Or don't you work that way and instead focus on the earnings ratio?

I have more than one investing strategy ENP. RBD will not easily expand outside of the NZ market. But neither is it likely to go bust. So my strategy with regard to RBD comes under 'deep value'. Take advantage of the share price being battered down by past management follies and ride the share price back up as managment focusses back on the core home market. I am more focussed on what incremental sales RBD might get out of their national infrastructure. Competitiveness vis-a-vis the competition is important here. But keep costs under control and profits and the associated dividends (payout ratio is a matter of company policy) should naturally follow.

SNOOPY

Snoopy

29-04-2010, 11:49 AM

I think that going forward from here, RBD might get 5% earnings growth on average compounding over the next eight to ten years. Considering what happened during the last Lions tour we could hit 5% in FY2011, 10% the year after and a flattening off after that.

Ananlyst Sandra Urlich put out another bullish forecast for RBD on April 28th, suggesting profits mtay jump to $24m next year. Perhaps, but that is a way north above management's $20m and a bit guidance. I am more interrested in her guidance from December 2009:

"Urlich has upgraded her forecast earnings for the year ending February 28 from $16.2 million to $18.2 million and her 2011 forecast from $17.1 million to $19.1 million."

I am interested in why she now considers her December forecast so wrong. If her forecasting technique is to take management figures and add 20%, sooner or later she will be wrong. Then watch the sharemarket investor customers squeal.

SNOOPY

h2so4

29-04-2010, 12:20 PM

So some analyst is forcasting $18.2 but could jump to $24m for Y2010?????? I'd say she is covering her bottom.

Anna Naum

29-04-2010, 02:50 PM

Ananlyst Sandra Urlich put out another bullish forecast for RBD on April 28th, suggesting profits mtay jump to $24m next year. Perhaps, but that is a way north above management's $20m and a bit guidance. I am more interrested in her guidance from December 2009:

"Urlich has upgraded her forecast earnings for the year ending February 28 from $16.2 million to $18.2 million and her 2011 forecast from $17.1 million to $19.1 million."

I am interested in why she now considers her December forecast so wrong. If her forecasting technique is to take management figures and add 20%, sooner or later she will be wrong. Then watch the sharemarket investor customers squeal.

SNOOPY

She had a sell on the stock until recently I was told, playing catchup

h2so4

29-04-2010, 04:03 PM

Some analyst. Ha! I'd pick snoopy over her.

Snoopy

30-04-2010, 12:45 PM

Some analyst. Ha! I'd pick snoopy over her.

I highlighted Urlich as an example, but the question applies equally well to almost all the published analysts. Why do they all decide RBD is a good investment, after the share price has risen significantly? Wouldn't it have been better for their share investor customers if they had got them to position themselves beforehand so that they might benefit from any share price rise?

SNOOPY

Snoopy

30-04-2010, 01:09 PM

How well have I done out of RBD? I have been a shareholder since the beginning, a long 13 years ago. However most of my purchases have been more recent. The median holding time for my holding is just 4 years. In those 4 years I have received a total of 23.5cps in dividends. A ‘buy and hold’ investor buying at that time would have paid $1.30 per share. But my average purchase price is $1.02. So my purchase timing, while not optimal, has been very advantageous.

My total return has been: (1.02+0.235)(i^4)=(2.31), where ‘i’ works out at 16% compounding.

Over that same time period the NZX50 has declined from 3700 to 3300. That represents a loss of:

3700(f^4)=3300, where ‘f’ works out as 0.97. This represents a compounding loss of 3% per annum.

Putting the two together I am looking at an overall outperformance of the NZX50 by 19% compounding per year every year for four years after tax.

SNOOPY

h2so4

30-04-2010, 01:44 PM

I highlighted Urlich as an example, but the question applies equally well to almost all the published analysts. Why do they all decide RBD is a good investment, after the share price has risen significantly? Wouldn't it have been better for their share investor customers if they had got them to position themselves beforehand so that they might benefit from any share price rise?

SNOOPY

Maybe at the time they had a "better growth investment " to sell share investor customers. Better for them aye.:)

h2so4

30-04-2010, 01:46 PM

ENP

30-04-2010, 02:25 PM

Wouldn't it have been better for their share investor customers if they had got them to position themselves beforehand so that they might benefit from any share price rise?
SNOOPY

Sorry but I had to chuckle to myself about that one.

How are they "experts" when they tell people to buy once it's gone up? Anyone can look at a graph...

chippy52

30-04-2010, 03:03 PM

Reminds me of a definition I once heard. The definition of a consultant was someone who borrows your watch to tell you the time.:D

Snoopy

30-04-2010, 06:40 PM

Yup. Now do it for the next 20 years.

I bet you I can't ;-). A reversion to the mean performance is almost sure to kick in. Nevertheless I still think I can retain a 2 percentage point return on the 5 year bond rate over the business cycle. I think an 8% return over 20years is achievable for RBD shareholders. Ironically one of the best methods for boosting my returns could be to sell down my holding and in so doing reduce my average purchase price.

SNOOPY

biker

06-05-2010, 04:51 PM

Elevator near the top floor?

Anyone getting off?

Still buying in on Brokers recommendations?

Disc. I'm out. The easy profit has been made IMHO.

Snoopy

06-05-2010, 06:08 PM

Elevator near the top floor?

In historic share price terms yes.

Anyone getting off?

No

Still buying in on Brokers recommendations?

No

The easy profit has been made IMHO.

I agree, but where can you put your money to earn a better return from here on out? Believe me I have looked, and I'm staying in.

SNOOPY

biker

06-05-2010, 06:16 PM

Sometimes a better return on capital is trumped by a lesser return and retaining capital, but then I'm just getting conservative and sceptical in my old age.

h2so4

06-05-2010, 06:52 PM

I agree, but where can you put your money to earn a better return from here on out? Believe me I have looked, and I'm staying in.

SNOOPY

Better than any brokers recommendation. :)

BRICKS

10-05-2010, 08:44 AM

BRICKS yesterday went on a mystery adventure tour and ended up at Levin KFC which can report has the the base floor poured that is all but on the same block is a small Pizza hut outlet so all is not lost the pub we where going to
The hungry ox next to KFC had close down for good and ended up in Levin RSA at back of KFC but the dinner closes @ 1.00pm
but they feed us for FREE.. O,O what a TOUR...

macduffy

10-05-2010, 09:13 AM

but they feed us for FREE.. O,O what a TOUR...

What's this?

BRICKS discovers the mythical free lunch?

Dr_Who

10-05-2010, 09:50 AM

In the old days you only get a KFC voucher.

BRICKS

10-05-2010, 09:57 AM

What's this?

BRICKS discovers the mythical free lunch?

THE RSA feed us..

BRICKS

11-05-2010, 10:25 AM

WELL just when things where looking up for para Pizza hut along come HELL and built a new one opposite this can only mean a set back for PH in a very tight market but today up went the s/price it was noted yesterday
that they are still talking about selling Starbucks for 10 million so what would they do with the money first pay back
debt then throw the rest of the money at the SHAREHOLDERS......

BRICKS

14-05-2010, 09:12 AM

WAS informed yesterday that the frame has gone up to the new LEVIN KFC as the TV add in AUSTRALIA goes " It wont be long now GUYS."

h2so4

24-05-2010, 10:30 PM

Hey snoopy
You still loaded up with these? I just opened my account.:t_up:

BRICKS

01-06-2010, 10:42 AM

YET up again but RBD cant just make that $2.40 of Snoopy's call but it seems it will come..

Meanwhile back at Levin KFC the roof is up and starting to look like the modern KFC style this will be a good earner when going as it is on State Highway 1 the new Wellington Airport to Levin new 4 lane super highway right to our front DOOR....

Snoopy

03-06-2010, 10:51 AM

Hey snoopy
You still loaded up with these? I just opened my account.

Yes still hanging in there. Can't see any reason to reduce my holding below that $2.40 price. Even when I 'sell down' , I still expect RBD to be my largest NZX investment.

SNOOPY

Anna Naum

19-06-2010, 07:39 AM

Starbucks not on the market

Starbucks is not actively for sale, its New Zealand franchise holder Restaurant Brands says.

The coffee house chain was reported to be on the market recently for between $10 million and $20m, but the pricing had been a throwaway comment by the chief executive, said Restaurant Brands chief financial officer, Grant Ellis.

"The short answer is, it's not actively on the market, but all our businesses are for sale at the right price," he said.

Would-be buyers had since offered to take individual stores off the company's hands, but Mr Ellis said it was more likely to sell the New Zealand chain in its entirety.

percy

19-06-2010, 10:15 AM

One cann't help but think of the Tui billboard,"Yeah Right".

Snoopy

06-07-2010, 06:45 PM

One cann't help but think of the Tui billboard,"Yeah Right".

Still a lot of cynicism out there regarding RBD, but as the Chairman reminded us at the AGM:

"Restaurant Brands has been the best performer on the NZX50 gaining more than 120%. Those who bought the stock 12 months ago at about $1 a share (or even earlier at the 65 cent mark) have enjoyed a substantial gain to current levels of $2.30 a share."

On 28th February 2002 there were 8858 individual shareholders in RBD. Roll on eight years and the number is 5643. That represents a moderate investment disaster for the 3215 former shareholders who have left in the interim. The wise chartists might have timed thier re-entry, but on balance many of those former RBD investors are not looking that wise.

SNOOPY

percy

06-07-2010, 07:05 PM

Still a lot of cynicism out there regarding RBD, but as the Chairman reminded us at the AGM:

"Restaurant Brands has been the best performer on the NZX50 gaining more than 120%. Those who bought the stock 12 months ago at about $1 a share (or even earlier at the 65 cent mark) have enjoyed a substantial gain to current levels of $2.30 a share."

On 28th February 2002 there were 8858 individual shareholders in RBD. Roll on eight years and the number is 5643. That represents a moderate investment disaster for the 3215 former shareholders who have left in the interim. The wise chartists might have timed thier re-entry, but on balance many of those former RBD investors are not looking that wise.

SNOOPY
All credit to RBD and shareholders.Still think they would like to be rid of Starbucks, and the remark that it was not actively for sale stirred me to say Yeah right.

h2so4

06-07-2010, 07:15 PM

All credit to RBD and shareholders.Still think they would like to be rid of Starbucks, and the remark that it was not actively for sale stirred me to say Yeah right.

You can buy the lot for just $2.30 per share............... bargain!!!!

Snoopy

10-07-2010, 05:00 PM

Hi Snoopy
I only look at cash, (owner earnings), can't remember the last time I looked at a PE.

Believe it or not RBD had owner earnings of 42m last year

Depreciation =$12.0m + Amortization =$1.1m - CAPEX $15.4m = -$2.3m
Tax effect (x0.3) that is $0.7m

FY2010 Net Profit $19.7m

RBD Owner earnings for FY2010 $19.7m-$2.3m+$0.7m= $18.1m. What am I missing?

SNOOPY

Snoopy

10-07-2010, 05:14 PM

RBD looks set for a bumper year. What are they going to do with all that cash?

1/ Around $18m of secured bank loans could be paid off, which might enable them to negotiate better banking terms.
2/ Creditors are up $3m year on year. RBD could pay their bills more promptly and negotiate better supplier rates as a trade off for doing so.
3/ Shareholder expectation will be for dividends of 16cps this year or $15.6m.

That pretty much takes care of the cash I think.

SNOOPY

winner69

10-07-2010, 06:01 PM

Depreciation =$12.0m + Amortization =$1.1m - CAPEX $15.4m = -$2.3m
Tax effect (x0.3) that is $0.7m

FY2010 Net Profit $19.7m

RBD Owner earnings for FY2010 $19.7m-$2.3m+$0.7m= $18.1m. What am I missing?

SNOOPY

As i said on the SKL thread where all this started often better to use Owners earnings and Free Cash Flow as the same

FCF is operating cash flow lwss capex ... and easier to calculate than going through the balance sheet and P&L and picks up changes in working capital and all that

h2so4

10-07-2010, 06:04 PM

Here are my values.

E = 19.5
D+A=13
Changes to working capital = 23.6
C ex.= 13.8
19.5+13+23.6-13.8=42.3

Of course it is only one year, but look at the cash yield.

42.3/197=21.5%=bargain

winner69

10-07-2010, 07:06 PM

Here are my values.

E = 19.5
D+A=13
Changes to working capital = 23.6
C ex.= 13.8
19.5+13+23.6-13.8=42.3

Of course it is only one year, but look at the cash yield.

42.3/197=21.5%=bargain

I am guessing but it looks like you use working capital as current assets less current liabilities?

If so you have included an amount of $17,9 for 'loans and finance leases' which shows as current in 2010 but was part of the $34m in non current liabilities in 2009 .... as such not really a change in working capital

Adjust for that and we will sort have have the same figure ..... and I didn't even use the E in my calcs

winner69

10-07-2010, 07:12 PM

Depreciation =$12.0m + Amortization =$1.1m - CAPEX $15.4m = -$2.3m
Tax effect (x0.3) that is $0.7m

FY2010 Net Profit $19.7m

RBD Owner earnings for FY2010 $19.7m-$2.3m+$0.7m= $18.1m. What am I missing?

SNOOPY

Snoopy ... missing the change in working capital

Note 24 in the accounts summarises that ,,, and that will also highlight why using free cash flow is just as good as 'owners earners'

h2so4

10-07-2010, 07:21 PM

Can you explain what it says in note 24?

h2so4

10-07-2010, 07:58 PM

I am guessing but it looks like you use working capital as current assets less current liabilities?

If so you have included an amount of $17,9 for 'loans and finance leases' which shows as current in 2010 but was part of the $34m in non current liabilities in 2009 .... as such not really a change in working capital

Adjust for that and we will sort have have the same figure ..... and I didn't even use the E in my calcs

I don't understand why it it's not a change. Can you please explain what's happened here. I know you don't want me over paying for my shares.:)

Snoopy

10-07-2010, 08:35 PM

Snoopy ... missing the change in working capital

The increase in working capital comes largely from not paying your bills to the extent of $3.123m, and not paying tax on increased profit you have already earned of $2.938m , because the law allows it. Are you not deluding yourself about the nature of the working capital improvements? Creditors will eventually have to be paid and so will that tax bill. How does including the fact that these bills are not yet paid in the companies cash position show that RBD management are better at running their business? Is not paying your bills and not paying your tax a viable long term growth strategy?

SNOOPY

h2so4

10-07-2010, 09:23 PM

The increase in working capital comes largely from not paying your bills to the extent of $3.123m, and not paying tax on increased profit you have already earned of $2.938m , because the law allows it. Are you not deluding yourself about the nature of the working capital improvements? Creditors will eventually have to be paid and so will that tax bill. How does including the fact that these bills are not yet paid in the companies cash position show that RBD management are better at running their business? Is not paying your bills and not paying your tax a viable long term growth strategy?

SNOOPY

These are receivables and payables that have already been booked to the income statement. You are simply adding or subtracting them to get a truer picture. They will re enter the picture when the money has actually been received or bills paid.

winner69

10-07-2010, 09:37 PM

Using Free cash Flow or h2so4's formula could be seen as a lazy way to calculate 'owners earnings' because it doesn't address the points you raise.

If you improve your working capital position you have generated cash - thats good eh. Even better is business's like RBD can use creditors money as a source of capital (unlike SKL)

To overcome the problems like increases in unpaid tax as at balance date a more convential figure to use is trade working capital - ie inventory + trade debtors + trade creditors. This leaves out things like employee provisions and tax which are amounts where the liability has been incurred but not paid.

Over the course of time these things generally all balance out anyway and don't really impact upon the 'intrinsic value' of the company anyway

h2so4

10-07-2010, 10:18 PM

Deferred tax expenses are a non current asset not working capital.

The owner earnings calculation does not reconcile deferred taxes as it recognises that they will eventually have to be paid.

However free cash flow adds in deferred taxes (shown in the statement of cash flow) as though the company never has to pay it.

winner69

11-07-2010, 07:17 AM

I don't understand why it it's not a change. Can you please explain what's happened here. I know you don't want me over paying for my shares.:)

The $17m odd is borrowings ... a source of capital .... not working capital .... thats why I wouldn't include it in owners earnings

h2so4

11-07-2010, 11:16 AM

The $17m odd is borrowings ... a source of capital .... not working capital .... thats why I wouldn't include it in owners earnings

OK, I'm still a tad confused.

In 2009 total debt=34m

In 2010 where did the money come from to reduce debt by 16.2m?.......Cash?

h2so4

11-07-2010, 01:43 PM

Got it...well I think have?

Debt repayment is after owner earnings and should not be added to cash.

New owner earnings 2010 =24.5m

Snoopy

11-07-2010, 07:20 PM

These are receivables and payables that have already been booked to the income statement. You are simply adding or subtracting them to get a truer picture. They will re enter the picture when the money has actually been received or bills paid.

The unpaid payments to suppliers and future tax bill are both payables from where I sit. I still fail to see how not paying your bills improves the long term ability of a business like RBD to generate cashflow. I also fail to see how paying the bills enhances the RBD business in a long term way. To me the issue is irrelevant. The vicissitudes in timing of paying your bills shouldn't affect the long term ability of the underlying RBD business model to generate cash.

And yes I did subtract them to get a truer picture, as a truer picture is exactly what I am after.

SNOOPY

Snoopy

11-07-2010, 07:31 PM

These are receivables and payables that have already been booked to the income statement. You are simply adding or subtracting them to get a truer picture. They will re enter the picture when the money has actually been received or bills paid.

You might make the argument that when a business is growing the tax bill always lags behind the increasing profitability. Thinking like that, it would be legitimate to consider the increase in resulting working capital because of deferred tax payments as an extra asset that the company can use. The problem with that appraoch is that it requires the company to keep growing in profitability in one direction with no reversals. This does seem unlikely if you consider RBD from where I sit.

SNOOPY

h2so4

11-07-2010, 10:28 PM

The unpaid payments to suppliers and future tax bill are both payables from where I sit. I still fail to see how not paying your bills improves the long term ability of a business like RBD to generate cashflow. I also fail to see how paying the bills enhances the RBD business in a long term way. To me the issue is irrelevant. The vicissitudes in timing of paying your bills shouldn't affect the long term ability of the underlying RBD business model to generate cash.

And yes I did subtract them to get a truer picture, as a truer picture is exactly what I am after.

SNOOPY

Add them back in Snoopy, they have already been recorded as an expense on the income statement.

h2so4

11-07-2010, 10:31 PM

You might make the argument that when a business is growing the tax bill always lags behind the increasing profitability. Thinking like that, it would be legitimate to consider the increase in resulting working capital because of deferred tax payments as an extra asset that the company can use. The problem with that appraoch is that it requires the company to keep growing in profitability in one direction with no reversals. This does seem unlikely if you consider RBD from where I sit.

SNOOPy

Well that seems a silly approach. The taxman is still going to come knocking.

I have a feeling that might also be illegal?

Snoopy

12-07-2010, 10:46 AM

Add them back in Snoopy, they have already been recorded as an expense on the income statement.

That is exactly my point Sulphur sugar daddy. Supplier expenses and tax bills have already been incurred because of normal business operations. How can you justify counting the resulting cash required to pay these bills on the balance sheet as extra 'owner earnings', when the simple act of paying these bills would immediately wipe out this extra cash?

A significant change between FY2009 and FY2010 is that an extra $3.123m of supplier bills have been withheld over and above all the bills held for payment at the end of the previous year. Yet you are telling us this is extra cash 'owner earned' by the company? I reiterate my point that simply not paying your bills may work for one year, but is not a long term cash generating strategy.

SNOOPY

h2so4

12-07-2010, 01:10 PM

That is exactly my point Sulphur sugar daddy. Supplier expenses and tax bills have already been incurred because of normal business operations. How can you justify counting the resulting cash required to pay these bills on the balance sheet as extra 'owner earnings', when the simple act of paying these bills would immediately wipe out this extra cash?

A significant change between FY2009 and FY2010 is that an extra $3.123m of supplier bills have been withheld over and above all the bills held for payment at the end of the previous year. Yet you are telling us this is extra cash 'owner earned' by the company?

SNOOPY

ha.......na not me Snoopy but the man himself.

In his1986 Letter to Shareholders, Warren Buffett defined his formula for owner earnings....."we consider the owner earnings figure, not net income or earnings, to be the relevant item for valuation purposes both for investors in buying stocks and for managers in buying entire stocks."

He then gave his formula Owner earnings = Net income + Depreciation and Amortization + Non Cash Charges - Average Capital Expenditures.

"Sugar Daddy"........hmmm.....yeah I think I like it, yeah call me Sugar Daddy:)

winner69

12-07-2010, 07:49 PM

Acid man - doesn't the man himself actually use 'owners earnings' for something?

OK RBD 'owners esrnings' at $25m or whstever it is sounds impressive and that is all that matters to you? Doubt it

The man himself uses 'owners earnings' as a basis of calculating the intrinsic value of the company (or at least thats the story but prob Munger does that). The intrinsic value being the NPV of future 'owners earnings'

Taking RBDs $25m and using a 10% required return and no future growth whatsoever the intrinsic value of RBD is about $2.40 ..... todays price ,,,,,, and that is allowing for no growth in earnings .... no growth forever.

Put 3% growth in the intrinsic value is about $3.00 and 5% growth is about $3.30

So expect RBD to grow and it is still a screaming buy .... thats why Snoopy isn't selling

The enigma with RBD is what can you expect future growth to be. Revenues are about the same as 10 years and they have for zonks been around the $300m plus or minus a bit mark. The last 2 years have been good and they have achieded 3% odd growth. Earnings have risen from better margins and reduced overheads with a record EBIT margin being reported this year. The question is is this record margin sustainable which could affect earnings growth into the future.

All looks good on paper doesn't it .... the charts looks OK as well .... so as P would say why sell if you already have .... and prob no reason why you shouldn't buy either

Snoopy

12-07-2010, 08:41 PM

ha.......na not me Snoopy but the man himself.
In his1986 Letter to Shareholders, Warren Buffett defined his formula for owner earnings
He then gave his formula Owner earnings = Net income + Depreciation and Amortization + Non Cash Charges - Average Capital Expenditures.

http://www.berkshirehathaway.com/letters/1986.html

What you quote is right, except there is no mention of Warren saying anything about adding on all non-cash charges as you claim. Now I hope you will allow me to quote from the same source:

"Managers and owners need to remember, however, that accounting is but an aid to business thinking, never a substitute for it." - Warren Buffett. Now, any chance of answering the original question I put to you?

SNOOPY

h2so4

12-07-2010, 08:45 PM

......yes yes yes your right, your right,your right.... now what question was that????????????

Snoopy

12-07-2010, 08:49 PM

......yes yes yes your right, your right,your right.... now what question was that????????????

Supplier expenses and tax bills have already been incurred because of normal business operations. How can you justify counting the resulting cash required to pay these bills on the balance sheet as extra 'owner earnings', when the simple act of paying these bills would immediately wipe out this extra cash?

SNOOPY

h2so4

12-07-2010, 08:57 PM

h2so4

12-07-2010, 09:16 PM

Supplier expenses and tax bills have already been incurred because of normal business operations. How can you justify counting the resulting cash required to pay these bills on the balance sheet as extra 'owner earnings', when the simple act of paying these bills would immediately wipe out this extra cash?

SNOOPY

Well you are simply trying to convert RBD's accounting method from an acrual basis to a cash basis so you can look at the true "owner earnings"

That last quote you posted, go re read it.

But as always you are right.:)

Snoopy

12-07-2010, 10:10 PM

Snoopy said he was selling at $2.40 not sure why?

I said I would sell some RBD at $2.40 for portfolio rebalancing reasons. The problem I have is that I have been too successful with RBD and if I do nothing my portfolio will be skewed. Even when I sell down though, I still expect RBD to be my largest NZX holding, by a long way. The main reason I put that $2.40 peg in the sand is that others here were talking of selling out at an even cheaper price. I reckoned they would be virtually giving free money away if they did that.

SNOOPY

Snoopy

12-07-2010, 10:17 PM

Well you are simply trying to convert RBD's accounting method from an acrual basis to a cash basis so you can look at the true "owner earnings"

If that is what you think I have failed. I am trying to look at true 'owner earnings' (whatever that means) on an accrual basis. I think both you h2SO4 (and Winner) are looking at 'owner earnings' on a cash basis and I am trying to understand why.

SNOOPY

h2so4

13-07-2010, 07:56 AM

If that is what you think I have failed. I am trying to look at true 'owner earnings' (whatever that means) on an accrual basis. I think both you h2SO4 (and Winner) are looking at 'owner earnings' on a cash basis and I am trying to understand why.

SNOOPY

Why don't you ask the man himself?

http://www.cnbc.com/id/37654458

Here is my analogy.
As a Sugar Daddy I like to carry all my cash in my wallet. I don't carry my bills in my wallet and my cash in my pocket,(not a good look for a Sugar Daddy), besides I could lose my money or it might go through the washing machine. (I have done both)
As a business owner or manager wouldn't you want to do the same, or perhaps just peek at it for a valuation, or just to give you peace of mind. Is my business generating lots of + owner earnings to repay debt, grow the business, or pay dividends or is it the opposite. Do I have lots of cash in my wallet or am I down to my last credit card?
You are trying to get a truer picture of what earnings the business generated after capital expenses, but before depreciation amortization and certain other non-cash charges.:mad ;:
In other words what's left for the owner, even if it is for just one day.

winner69

13-07-2010, 08:31 AM

I'd add in Equity to get intrinsic value, so owner earnings @ 25m no growth and 10% return = 213m + 48m equity= 261m about $2.69.

Why would you want add in equity ..... doesn't the man himself say that the intrinsic value of a company IS the value of what that equity is really worth

I'm sure the man himself would use something like intrinsic value less debt = value of equity (ie market cap)

Snoopy

13-07-2010, 10:06 AM

But as always you are right.:)

One more holistic comment re me and RBD. The more optimistic the outlook for RBD the better. My preferred outcome would be for you to be entirely correct h2SO4, and failing that I hope that Winner is right. I already have a big (for me) stake in RBD. To have that stake worth as much as possible suits me just fine. However, I have been on the RBD register long enough to see past forecasts of growth turn to etherial hype. I am very probing on anyone who forecasts blue sky for RBD. I look closely whether they can back statements up. If I have been more often right than wrong about RBD prospects, it is not because I am smarter than those who thought otherwise. It is because I have put in more homework. I encourage people to challenge my views. But reserve the right to challenge those opposing views using my own standards of research rigour.

SNOOPY

h2so4

13-07-2010, 10:22 AM

One more holistic comment re me and RBD. The more optimistic the outlook for RBD the better. My preferred outcome would be for you to be entirely correct h2SO4, and failing that I hope that Winner is right. I already have a big (for me) stake in RBD. To have that stake worth as much as possible suits me just fine. However, I have been on the RBD register long enough to see past forecasts of growth turn to etherial hype. I am very probing on anyone who forecasts blue sky for RBD. I look closely whether they can back statements up. If I have been more often right than wrong about RBD prospects, it is not because I am smarter than those who thought otherwise. It is because I have put in more homework. I encourage people to challenge my views. But reserve the right to challenge those opposing views using my own standards of research rigour.

SNOOPY

You are always right Snoopy.

Do what feels best for you.:)

Snoopy

13-07-2010, 10:23 AM

You are trying to get a truer picture of what earnings the business generated after capital expenses, but before depreciation amortization and certain other non-cash charges. In other words what's left for the owner, even if it is for just one day.

I agree Sulphur Sugar Dad, that if you want the most accurate view of what is in your pocket now your treatment of 'owner earnings' makes the best sense. I have no issue with your reasoning here. My objective is different to yours. I am not that interested in getting a snapshot of my position as (part) owner. My interest in this figure is how to build it into a forecasting model. And that means stripping out the one off effects.

SNOOPY

h2so4

13-07-2010, 10:40 AM

Why would you want add in equity ..... doesn't the man himself say that the intrinsic value of a company IS the value of what that equity is really worth

I'm sure the man himself would use something like intrinsic value less debt = value of equity (ie market cap)

In my mind he said intrinsic value is the discounted value of the 'cash' that can be taken out of the business. The business has a net worth, that surely must be added in? Does it not have a 'cash' value?

h2so4

14-07-2010, 09:34 AM

I agree Sulphur Sugar Dad, that if you want the most accurate view of what is in your pocket now your treatment of 'owner earnings' makes the best sense. I have no issue with your reasoning here. My objective is different to yours. I am not that interested in getting a snapshot of my position as (part) owner. My interest in this figure is how to build it into a forecasting model. And that means stripping out the one off effects.

SNOOPY

Well thats the whole point. It's the basis for your forcasting.
It's the 'cash' the business generated. You can't hide from it.
It's not earnings.-This is all the cash I made ignoring the tax write offs.
It's not this is all I made lets start with that:- Oh I didn't have any cap ex this year but I'll have some next year.
It's not here is my profit but dont forget to strip out the one offs.(though probably not a bad idea)
It's not I have a bill there and a bill there, but the money has been put aside over there.:mad ;:
It's not Blue sky for RBD
It's not ethereal hype.
It's owner earnings and it's the 'cash' that Buffett talks about.
It's the starting point as (owner, part-owner, or manager) for your model aeroplanes, boats or whatever.

Anyway, Did you sell your shares?

Snoopy

14-07-2010, 10:31 AM

Well thats the whole point. It's the basis for your forecasting. It's the 'cash' the business generated. You can't hide from it. It's not earnings.-This is all the cash I made ignoring the tax write offs. It's the starting point

SSD, if your point is 'cash is cash' whereas earnings can be manipulated by accounting tricks I agree with you. The cash generated last year is 'real' in the RBD bank account and cannot be denied, or altered by accounting standards. The key word in your post is 'generated' (past tense). If you buy into RBD today you are looking for future cash generation, not past cash generation. The important question is: 'What cash will RBD generate in FY2011?'. How do you see the answer to that question?

SNOOPY

Snoopy

14-07-2010, 10:36 AM

Anyway, Did you sell your shares?

No. Isn't that pathetic? Although I guess Phaedrus would approve.

SNOOPY

h2so4

14-07-2010, 10:36 AM

Quote 'What cash will RBD generate in FY2011?'.

What's it worth to you young man?

h2so4

14-07-2010, 10:41 AM

No. Isn't that pathetic? Although I guess Phaedrus would approve.

SNOOPY

If that's good for you. Thats great

Phaedrus

14-07-2010, 12:13 PM

[["Did you sell your shares?"]] No. Isn't that pathetic? Although I guess Phaedrus would approve. There is nothing at all pathetic about holding on to a rising stock, Snoopy - so yes, I thoroughly approve. To sell a stock in a strong uptrend simply to "rebalance your portfolio" would be pathetic. Surely the aim is to maximise gains rather than engineer a perfectly balanced portfolio! The time to sell will come soon enough - you can do your rebalancing then.

This chart depicts a set of indicators tailored to the long downtrend. All triggered at around the same time and gave excellent entry signals. These same indicators will all eventually give "sell" signals, but with such conservative parameters they will be relatively slow to fire. As such, they are OK for fairly inactive investors but those looking for more timely exit signals would want to use faster indicators.

Lengthy discussions and diverse opinions on exactly how to "value" RBD are interesting, but ultimately are only of academic interest. What the market values RBD at is much more important.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD714.gif

winner69

14-07-2010, 12:30 PM

2756Phaedrus .... I always like your long term zigzag (sawtooth) charts

Over the last 13 years there have been times to be holding RBD shares and times when you should not have been holding RBD shares

Now is a time one should be holding .... not thinking of selling

Anyway my pathetic attemp at the chart showing the main trends over the last 13 years

h2so4

15-07-2010, 02:37 PM

Quote 'What cash will RBD generate in FY2011?'.SNOOPY

What's it worth to you young man?

Restated:-What will you give me in return for the information you are seeking?

Snoopy

15-07-2010, 06:50 PM

Restated:-What will you give me in return for the information you are seeking?

I will give you my full and serious attention SSD. You and I are in RBD together, and aren't as far apart in RBD valuation terms as you might think. We both agree that we should be looking at something like Buffet's 'Operating Earnings' as a valuation metric. But we don't agree on how top get there. I want to know what your forecast is and, more importantly, how you figured it out. You bought into RBD, IIRC, because of the cash generating ability of RBD in FY2010. I am presuming you see a connection between cash generated in FY2010 and FY2011. But until you put your forecast up, I am just guessing.

SNOOPY

h2so4

15-07-2010, 07:00 PM

I want to know what your forecast is and, more importantly, how you figured it out. You bought into RBD, IIRC, because of the cash generating ability of RBD in FY2010. I am presuming you see a connection between cash generated in FY2010 and FY2011. But until you put your forecast up, I am just guessing.

SNOOPY
What's it worth to you Snoopy???????????????????????????????????????

Snoopy

15-07-2010, 07:39 PM

What's it worth to you Snoopy???????????????????????????????????????

You are as stuttering now SSD! You give me your Owner Earnings forecast and I will give you mine.

SNOOPY

h2so4

16-07-2010, 04:04 PM

Originally Posted by SNOOPY
Quote 'What cash will RBD generate in FY2011?'.SNOOPY

Originally Posted by h2so4
Restated:-What will you give me in return for the information you are seeking?

I want to know what your forecast is and, more importantly, how you figured it out.

What's it worth to you Snoopy????????????????

You are as stuttering now SSD! You give me your Owner Earnings forecast and I will give you mine.

:mad ;:

Your forecast has no 'value'.

The answers you seek are written in this thread.

Seek the answers yourself.

Fail to find a 'value' for RBD and you will remain unsure about whether or not to sell your shares.

Snoopy

16-07-2010, 07:00 PM

Originally Posted by h2so4
The answers you seek are written in this thread.

Seek the answers yourself.

You are pretty confident about your own prediction aren't you SSD? You are an unusual animal as you care so much about cashflow. This is admirable and rare in that, IMO, most investors don't pay nearly enough attention to cashflow. But you carry 'following the cashflow' to a new level. You make no mention of the balance sheet, the snapshot of where the company starts from. You don't seem to have much regard for the profit figures either. Your fanaticism with just one side of the financial statement triangle is, IMO, likely to ultimately lead to your investment downfall. That would be a pity.

How much will your cashflow be hit if RBD decide to bring Taco Bell to New Zealand?

SNOOPY

h2so4

16-07-2010, 07:14 PM

You are pretty confident about your own prediction aren't you SSD? You are an unusual animal as you care so much about cashflow. This is admirable and rare in that, IMO, most investors don't pay nearly enough attention to cashflow. But you carry 'following the cashflow' to a new level. You make no mention of the balance sheet, the snapshot of where the company starts from. You don't seem to have much regard for the profit figures either. Your fanaticism with just one side of the financial statement triangle is, IMO, likely to ultimately lead to your investment downfall. That would be a pity.

How much will your cashflow be hit if RBD decide to bring Taco Bell to New Zealand?

SNOOPY

SNOOPY
Why do you continually seek answers to questions that have no value to you?
I can only assume that you have nothing of value to give.

winner69

17-07-2010, 11:11 AM

Acid man .... another variant of owners earnings is MVA ... Market Value Added where MVA is the NPV of future economic value added

I reckon RBD will make $23m over and above its cost of capital this year (economic value added) and using this would give a MVA of about $240m which implies a share price of just under $3

Good one eh .... and if Taco Bell was bought to NZ you would have to add that to the share price

As a matter of interest RBD is one of very few companies in NZ that has always (even when it was only making $10m) made more than its cost of capital .... not a bad feat

Snoopy

17-07-2010, 11:48 AM

.... and if Taco Bell was bought to NZ you would have to add that to the share price

Winner, I predict that if Taco Bell comes to NZ it will be loss making for at least five years. There will be huge set up costs, with the associated extra office overhead while the buisiness builds to a size to justify that TV advertising. I think RBD has another 5 years of KFC growth left in it. After that, where will the growth come from? Taco Bell could be the answer as by 2015 that critical mass needed to go into profit could well be there. But Taco Bell is a long term development strategy, not an instant money press.

SNOOPY

BRICKS

17-07-2010, 12:00 PM

RBD has just turned the corner from Austarlia with Pizza and made profits for the shareholders so WHY put your head back in the noose stop all your stupit chit chat talk about BELL and count the KFC money..

Snoopy you said the other day a 16 cent div headed next year very interesting you are higher than what BRICKS
thought...

h2so4

17-07-2010, 12:26 PM

Snoopy

17-07-2010, 12:51 PM

Snoopy you said the other day a 16 cent div headed next year very interesting you are higher than what BRICKS thought...

I said 16c because the last half was 8c and the expectation that current levels of profitability will continue is out there. Traditionally the 1st half dividend is lower that the second half. So I would guess 7c for the next interim dividend followed by a final divvie of 9c. Even at the low end of profitability forecasts, $24m NPAT equates to more than 24cps. a 16c divvie still leaves 8c of retained earnings to speed up the KFC refurbishment, pay down some debt and (groan) splash some cash on Taco Bell.

SNOOPY

Snoopy

17-07-2010, 01:16 PM

so WHY put your head back in the noose stop all your stupit chit chat talk about BELL and count the KFC money..

I'm not the one chit chatting on Taco Bell Bricks.

"The key driver for us is to take the money that's sitting in Pizza Hut stores and cash that up and use it in KFC or other brands, Taco Bell could be another brand for example," (Creedy) said. (from NZ Herald 10th May)

"the board and management will need to turn their attention to the next brand opportunities. We have, however, learnt from past mistakes and any new concepts will be very carefully evaluated before any significant investments are undertaken. " (Chairman's Address, AGM 2010) (Yeah right!)

SNOOPY

voltage

17-07-2010, 01:33 PM

read the report in the herald today about KFC inroads into China. Snoopy would YUMS be a better bet, the parent company.

Snoopy

17-07-2010, 05:58 PM

read the report in the herald today about KFC inroads into China. Snoopy would YUM be a better bet, the parent company.

I hold shares in both YUM and RBD. YUM is more of growth investment. RBD more for income. Ironically due to purchase timing, I have probably made more capital growth and income out of RBD. YUM gets franchise fees no matter what the profitability of the downstream retail outlet. I think it better to be the franchisor rather than the franchisee. YUM trades on a PE of around 14, while RBD has a PE of around 10. Is YUM a better company that RBD? Yes. Is YUM 40% better than RBD? A more difficult call.

Then with YUM you may have manager holding charges, Foreign Investment Fund tax, no imputation credits. It is a close call. You don't have to make that call if you hold shares in both.

SNOOPY

voltage

17-07-2010, 09:31 PM

thanks SNOOPY are there any other global giant companies one should have in a long term hold portfolio. I have a number of UK investment trusts but like to now focus on direct global giant share holdings

winner69

18-07-2010, 08:16 PM

I see PWC currently have WACC for RBD at 7.6%

I was using a higher value when I mentioned a $3 shareprice earlier .... at a 8% cost of capital you get a valuation of $3.40-$3.50

Obviously the market (gurus) have doubts about these record margins being maintained into the future

winner69

18-07-2010, 08:33 PM

Maybe acid man and sauce need not worry about growth .... its dividends that make people rich

http://www.smh.com.au/business/boring-they-may-be-but-dividends-still-win-the-race-20100716-10e60.html

h2so4

18-07-2010, 10:01 PM

=winner69;312160]Maybe acid man and sauce need not worry about growth .... its dividends that make people rich

All part of the spin to make more millions targeting retireres and pensioners while the young recuperate their losses from the last round of high-risk rapid growth investments.

Na mate ...I've been around too long, (well long enough to know).:)

h2so4

18-07-2010, 10:04 PM

winner69

19-07-2010, 07:16 AM

Don't these statements contradict each other?

I'm confused here winner.

No

The 'valuation' of $3.40-$3.50 based on forecasted 2011 earnings whcih implies that the high margins (relative to previous years) will continue forever

If margins are more 'normal' (historical levels) than the 'valuation' falls .... and as the market price is $2.30-$2.40 the market probably not convinced the current high margins will continue.

h2so4

19-07-2010, 10:16 AM

No

The 'valuation' of $3.40-$3.50 based on forecasted 2011 earnings whcih implies that the high margins (relative to previous years) will continue forever

If margins are more 'normal' (historical levels) than the 'valuation' falls .... and as the market price is $2.30-$2.40 the market probably not convinced the current high margins will continue.

Got it...........thanks mate.

Snoopy

19-07-2010, 10:58 AM

I see PWC currently have WACC for RBD at 7.6%
I was using a higher value when I mentioned a $3 shareprice earlier .... at a 8% cost of capital you get a valuation of $3.40-$3.50

Winner:
1/ If the WACC is 7.6%, and
2/ RBD is able to renegotiate its banking facilities so that they pay no more than 7.6% interest. and
3/ if the dividend yield is greater than 7.6% (which I think it will be), then

If you do a present value calculation on the future value of RBD dividends, you will get positive returns as far out into the future as you can see. That implies there is no price you can pay for RBD shares that is too high. I would submit that the PWC WACC of 7.6% cannot be right.

SNOOPY

winner69

19-07-2010, 11:21 AM

Winner:
1/ If the WACC is 7.6%, and
2/ RBD is able to renegotiate its banking facilities so that they pay no more than 7.6% interest. and
3/ if the dividend yield is greater than 7.6% (which I think it will be), then

If you do a present value calculation on the future value of RBD dividends, you will get positive returns as far out into the future as you can see. That implies there is no price you can pay for RBD shares that is too high. I would submit that the PWC WACC of 7.6% cannot be right.

SNOOPY

Sorry Snoopy .... I can't fathom what your are getting at ..... esp how 3) relates to 1) and 2)

h2so4

19-07-2010, 12:37 PM

The suppliers aren't dumb. They'll be upping their prices as GFC becomes a thing of the past. Employees will become harder to come by and they'll cost more to find and retain.

I don't believe there's any chance of these margins being maintaned for much longer.

The last time I was in business these costs were past on.. They called it inflation. What do they call it now shrinkage?:)

BRICKS

19-07-2010, 01:28 PM

THE LEVEN KFC is now open for BIZ & EATS this will add 1 million to the turnover so you lot can start counting the money and let know whats in it for BRICKS..

Snoopy

19-07-2010, 06:22 PM

thanks SNOOPY are there any other global giant companies one should have in a long term hold portfolio.

If you are subject to a 1.5% overseas investment wealth tax (thanks to the FIF regime) plus a 1% management fee from your broker for holding a foreign share via a portfolio management entity, that means your overseas investment must outperform your NZ/Oz investment by 2.5% per year just to be an an even footing (after tax). I don't pay an ongoing management fee on my YUM shares because I hold them directly. If I want to sell quickly, I might have some problems though. It is pretty difficult to find an overseas share with as good a prospects as YUM. I invest in minerals by holding BHP and having a finger in one of those big four Ozzie banks looks like a no brainer. Otherwise you can invest overseas by investing in NZ companies that predominantly trade overseas.

SNOOPY

voltage

19-07-2010, 09:40 PM

thanks snoopy, i hold some overseas shares via custodial which cost $50 each per year. If you can find companies that pay a high dividend, greater than 5%, this will limit FIF.

h2so4

20-07-2010, 09:40 AM

LOL ... I'm still in business and we can't call it inflation anymore. RDB's competition is significant and every consumer is watching their pennies. Passing on raw material increases has the potential to reduce sales. As always, it'll be a bit here from a bit there with everyone absorbing a bit.

I don't have a problem with their high profit margin being maintained. After all we are talking about a piece of chicken here not a 3D TV.

Snoopy

20-07-2010, 10:47 AM

I don't have a problem with their high profit margin being maintained. After all we are talking about a piece of chicken here not a 3D TV.

Never undersestimate how advanced RBD is. We are actually talking about a 3D bit of chicken complete with smellsaround aroma. That's hard to beat for high tech!

SNOOPY

h2so4

20-07-2010, 11:25 AM

Never undersestimate how advanced RBD is. We are actually talking about a 3D bit of chicken complete with smellsaround aroma. That's hard to beat for high tech!

SNOOPY

Brilliant!

I was refering to turnover. High turnover low profit v's low turnover high profit (well actually low profit when it comes to flat screen TV's).

Phaedrus

03-08-2010, 04:23 PM

This chart features a wide range of technical indicators suitable for monitoring RBD's current uptrend. Their individual sensitivity was set by fitting them to the low of September 2009. These indicators will provide clear signals when the uptrend weakens or ends. It is easy to see that right now, RBD is still very strong and none of these indicators are anywhere near triggering a Sell signal.

Some people think that the use of TA automatically leads to "overtrading". Charts like this show that this is not so. TA got you into RBD at 60 - 70 cents when the uptrend commenced, has kept you in for 18 months so far, and will get you out when the uptrend weakens or ends.

All too often here on ST we see people making handsome profits - then giving them back to the market because they have no exit strategy.

Don't let this happen to you!

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD83.gif

Snoopy

05-08-2010, 10:40 AM

This chart features a wide range of technical indicators suitable for monitoring RBD's current uptrend. All too often here on ST we see people making handsome profits - then giving them back to the market because they have no exit strategy.

Don't let this happen to you!

I notice that Phaedrus has subtley changed his RBD exit strategy. The last chart attached to post 1513 was based on an ordinary price scale which would have had Phaedrus starting to sell out when RBD breached that trendline when it bottomed out at $2.25 over the last month. The chart of Phaedrus post 1549 now has a logarithmic price scale with last months price wobbles still well above the trend line, presenting no reason to sell.

I am sticking to my long established FA call of picking $2.40 (i.e. about now) as a point where overweight shareholders should look at reducing their holdings. Past experience has told me that when no-one can think of any reason to sell, then that is a good time to start thinking about it. Liquidity of those RBD shares has certainly improved from when the price was lower, and that means a decent price should be attainable for moderately sized holdings.

Are there any FA reasons to sell now? On the face of it, no. I can't see that selling at a projected dividend yield of 10% and safely putting your money in the bank to earn just half that is appealing. There is no sign of weakness in the KFC renewal strategy. And just maybe the Pizza Hut selldown might start to gather some momentum. Rugby world cup year I think will bode well for Pizza Hut and may boost the income from the sale of Pizza and Pizza Outlets.

However, the downsides relate to the YUMisation of CEO Russel Creedy. Just because you can pull some things from the North American market and dump them here doesn't mean everything will work equally well. Taco Bell will be a multi-million dollar experiment which I am not sure will ever get the scale in this part of the world to be worthwhile. Didn't it fail in Australia? Will running half a dozen stores north of the Bombay hills ever cover the associated corporate overheads? In my mind South American style restaurants are going to be niche players in New Zealand for a long time. I think that if Creedy wants another restaurant chain he should look at other options, possibly outside of the YUM fold.

I think there is still too much Pizza Hut goodwill on the books. Admittedly this is a non cash item. But I think when the real market value of those Pizza Hut franchises being on sold to owner operators hits, the weakening of the balance sheet will not go unnoticed.

Furthermore I think that leaving the renegotiation of their banking facilities right up to the October deadline is a little arrogant. And although I cannot criticise the current boards actions, they are becoming a very small closed club. I think they need at least one new fresh minded strong independent director soon.

Beyond the World Cup, and nobody seems to be looking there, it is hard to see too much growth left for this business.

Nevertheless my scouring of the market for better investment opportunities has so far proved fruitless. I won't be selling down until I can see that better opportunity. So in this instance it is a question of those fellow RBD investors who want to sell down doing what I say rather than what I do!

SNOOPY

Gonzo

05-08-2010, 10:15 PM

not selling mine, always about 6 cars queued up when I drive by in Invercargill center of the world

iceman

06-08-2010, 04:53 AM

not selling mine, always about 6 cars queued up when I drive by in Invercargill center of the world

And the youngsters fighting to work there and wanting " to really get somewhere and get a career in fast food" :)
http://www.stuff.co.nz/nelson-mail/news/3993756/Applicants-queue-for-20-jobs-at-new-KFC-store[/URL]

Looks like the refurbishment of KFC is a definite winner with the younger generations. So like you Gonzo, I am staying the course and not considering selling in the near future.

Snoopy

11-08-2010, 12:51 PM

they have no exit strategy. Don't let this happen to you!

Exit strategy button pushed Phaedrus- sold at $2.49. Today I am suffering a 'gamblers rush' at the thought of that RBD money rushing into my bank account! My 'exit' is a bit half hearted. I have only sold 1/6th of my shares with no immediate plans to sell more. RBD still my major NZX investment. Average entry price for my remaining RBD shares is now 73c(!). Even Danny Diab would be impressed with that. I think chances are 80%+ RBD shares will go higher. So I have retained 80%+ of my shares. Have outlined what I see as RBD risks in another post. But real reason for selling: I need the money! Or more the truth, I might if this NZS recapitalisation plan comes to pass and I don't want to be caught short. Good luck to those shareholders that remain (which includes me)!

SNOOPY

Snoopy

12-08-2010, 12:36 PM

Exit strategy button pushed Phaedrus- sold at $2.49.

I hope you saw my 11th August RBD Blog on sharechat Winner

http://forum.sharechat.co.nz/showthread.php?t=2033

That was my quantitative case for my fiendishly astute planned selling. I used 'normalised earnings'. Not sure if that matches your 'owner earnings', but I don't have any more cashflows that I wanted to include. Paradoxically, you might look at my earnings per share model generated figures in a different way (compare to eps FY2011 actual forecasts), and brand me as a fool for selling. So what do you sharechatters reckon? Am I fiend or fool?

SNOOPY

h2so4

12-08-2010, 01:33 PM

Only time will tell Snoopy

winner69

12-08-2010, 01:47 PM

I hope you saw my 11th August RBD Blog on sharechat Winner

http://forum.sharechat.co.nz/showthread.php?t=2033

That was my quantitative case for my fiendishly astute planned selling. I used 'normalised earnings'. Not sure if that matches your 'owner earnings', but I don't have any more cashflows that I wanted to include. Paradoxically, you might look at my earnings per share model generated figures in a different way (compare to eps FY2011 actual forecasts), and brand me as a fool for selling. So what do you sharechatters reckon? Am I fiend or fool?

SNOOPY

Good stuff Snoopy ... table a bit hard to read but I get the gist

Probably what it says that the time to buy was when it was 95 cents eh and then you woulfd get Warrens 15% pa returns

Agree buying now one might struggle to get 15% pa for the next 10 years

You could have killed the FA and TA argument once and foe all if you had done that analysis back when the shareprice was 95 cents .... Warren (alais Snoopy) and Phaedrus would have been in agreement ..... fundamentally a great price .... shareprice trending up .... and the directors buying .... what other signals did one need

Snoopy

12-08-2010, 06:34 PM

You could have killed the FA and TA argument once and for all if you had done that analysis back when the shareprice was 95 cents ....

I did the analysis a year earlier Winner. When the share price was 95c, the eps five year record was 14.2cps, 13.8cps, 4.1cps, 6.1cps, 6.2cps. Not enough of a positive trend there to allow Warren's 10 year spreadsheet calculation to be valid. So 'Warren' would not have bought. Using a different sort of FA you might have bought on yield (historic gross yield 11% - div 3+4cps -, when sp was 95c), as I did. But some of those ardent TA guys consider dividends 'not real'. Dividends don't appear on those charts so ardent TAers miss out on this kind of thing.

SNOOPY

Snoopy

15-08-2010, 02:48 PM

I know how you guys just love charts. So here is my FA chart showing how fiendishly clever I have been in retaining most of my shares in RBD.

The stark thing about those nine years of results is the big step up KFC has taken in FY2010. Some would argue that over the long term and considering history this is unsustainable. However if you look at the after tax results for Pizza Hut you can see that branch of the business is still losing money, around $3m per year by my estimates. Up until last year there was no real way to fix this. Now with the option of offloading restaurants that will never be profitable for a corporate owner to private buyers there is a real possibility that over the next few years these Pizza Hut losses will go. That means even if KFC does slip back to their historic profitability levels, there is every prospect that current levels of group profitability will be stable as far out into the future as we can reasonably see. The other point this chart makes clear is that Starbucks is effectively an irrelevance, and an unnecessary distraction for management. The sooner RBD offload this chain the better IMO.

SNOOPY

Phaedrus

22-08-2010, 11:54 AM

I notice that Phaedrus has subtley changed his RBD exit strategy. The last chart attached to post 1513 was based on an ordinary price scale which would have had Phaedrus starting to sell out when RBD breached that trendline when it bottomed out at $2.25 over the last month. The chart of Phaedrus post 1549 now has a logarithmic price scale with last months price wobbles still well above the trend line, presenting no reason to sell.

Snoopy, there are many differences between those 2 charts, none of them particularly subtle. This is not surprising because they were set up for entirely different purposes. In the 1513 chart (page 101) indicators were all optimised for the long downtrend, with a view to providing timely BUY signals - and they did this very well indeed. While these same indicators could be used to provide an exit strategy, this is most certainly not what they were set up for. The recent 1549 chart (page 104) utilised the same indicators, but this time their parameters were optimised for the current uptrend, with a view to providing SELL signals when it weakens or ends.

'Warren' would not have bought.His loss eh? I guess it is possible to make ones entry criteria too tight and miss out on bonanzas like this one.

Using a different sort of FA you might have bought on yield when sp was 95c, as I did.But Snoopy, the same approach also had you buying RBD "on yield" at $1.75, $1.60, $1.30, $1.26, $1.24 etc etc. Perfect examples of the folly of buying when a stock is in a downtrend. You would have done much better waiting for the long downtrend to end before buying, regardless of yield.
By way of comparison, conservative technical indicators fired off buy signals between 65 and 75 cents.

Some of those ardent TA guys consider dividends 'not real'. TA advocates are well aware of the fact that dividends are real - it's just that they are not fixated on them the way some fundamentalists are. The big money is made by capital gains, not dividends.

Dividends don't appear on those charts so ardent TAers miss out on this kind of thing. No they don't! This must be galling for you Snoopy, but "ardent TAers" get dividends too! About one cent a month over the 17 months that they have held RBD - while the shareprice has been rising at well over 10 times that rate. Dividends pale into insignificance in the light of gains of that magnitude.

Snoopy

22-08-2010, 05:51 PM

But Snoopy, the same approach also had you buying RBD "on yield" at $1.75, $1.60, $1.30, $1.26, $1.24 etc etc. By way of comparison, conservative technical indicators fired off buy signals between 65 and 75 cents.

Yes, but thanks to my timely selling my average RBD buy price is now back in that 65 to 75 cent range.
And the shares I have left are still worth twice the dollar amount of the next share in my NZX portfolio.

TA advocates are well aware of the fact that dividends are real - it's just that they are not fixated on them the way some fundamentalists are. The big money is made by capital gains, not dividends.

I think long term in the NZX its 50/50 capital gains vs dividends.

SNOOPY

Snoopy

22-08-2010, 06:23 PM

His loss eh? I guess it is possible to make ones entry criteria too tight and miss out on bonanzas like this one.

Warren misses many investment opportunities because of the kinds of companies he believes his team is competant to analyze. It particular Warren doesn't like 'turnarounds' like RBD was. But don't write off Warren's methods with RBD yet. If the share price were to take a decent dip in the near future, he would be buying RBD, probably for keeps.

SNOOPY

Snoopy

22-08-2010, 06:26 PM

Snoopy, there are many differences between those 2 charts, none of them particularly subtle. This is not surprising because they were set up for entirely different purposes. In the 1513 chart (page 101) indicators were all optimised for the long downtrend, with a view to providing timely BUY signals - and they did this very well indeed. While these same indicators could be used to provide an exit strategy, this is most certainly not what they were set up for. The recent 1549 chart (page 104) utilised the same indicators, but this time their parameters were optimised for the current uptrend, with a view to providing SELL signals when it weakens or ends.

So your justification for using a linear share price scale when assessing downtrends and a log scale in assessing uptrends is what?

SNOOPY

winner69

22-08-2010, 07:56 PM

Snoopy me old mate ..... Average cost of about 70 cents eh ... obviously calculated by using the 'profits' on some sales to lower the overall cost.

A methodology that I find rather (can't find the right word) ..... and the answer could cloud your judgement a bit.

Why don't you sell 28% of your existing holding and then you could say that whats left are free ..... cost you zilch .... zero ... nought .... surely a great opportunity to average down even more

Then all discussions/debate between you and Phaedrus would be dead .... you win lock stock and barrel

Phaedrus

22-08-2010, 08:07 PM

So your justification for using a linear share price scale when assessing downtrends and a log scale in assessing uptrends is what?Generally speaking, log price scales should be used - regardless of the direction of the trend. Very occasionally a linear price scale gives a trendline that better monitors the price action, making it the preferred option.

Use of a log price scale to monitor RBD's long downtrend resulted in multiple trendline-break "buy" signals, none of which were confirmed by any of the many other indicators being used to monitor this downtrend. A linear price scale gave better correlation in this instance.

Similarly, use of a linear price scale to monitor the current uptrend resulted in a trendline-break "sell" signal at $2.33. Again, this premature, isolated signal was not confirmed by any of the many other indicators being used to monitor the uptrend. As you can see, the usual log price scale gives an as yet unbroken trendline.

It is of course not good practice to act on the basis of any single, isolated and unconfirmed signal.

Phaedrus

22-08-2010, 08:52 PM

If RBD were to take a decent dip in the near future, Warren would be buying RBD, probably for keeps.
WB is more of a trader than you think, Snoopy.

You might be surprised to learn that his median holding period is one year......................

Only 20% of his stocks are held for more than two years...............

and approximately 30% of his stocks are sold within six months.

Snoopy

22-08-2010, 09:41 PM

WB is more of a trader than you think, Snoopy.
You might be surprised to learn that his median holding period is one year......................
Only 20% of his stocks are held for more than two years...............
and approximately 30% of his stocks are sold within six months.

Interesting Phaedrus. Where do these stats come from?

SNOOPY

Snoopy

22-08-2010, 09:52 PM

Why don't you sell 28% of your existing holding and then you could say that whats left are free ..... cost you zilch .... zero ... nought .... surely a great opportunity to average down even more.

Well I could take all the money I have put into RBD off the table save for one measly dollar. Then I could quote fantastic percentage returns I had made from my remaining investment dollar more of less regardless of where the RBD share price ends up. Would that satisfy you Winner?

Then all discussions/debate between you and Phaedrus would be dead .... you win lock stock and barrel

I am not really interested in winning some contrived statistical game Winner.

SNOOPY

Phaedrus

23-08-2010, 11:41 AM

These came from a recent paper on Warren Buffett's investments by Hughes, Liu and Zhang.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1635061

BRICKS

23-08-2010, 11:49 AM

macduffy

23-08-2010, 11:56 AM

And all the best to you, BRICKS.

Look forward to seeing you resume posting in near future.

Cheers

h2so4

23-08-2010, 12:03 PM

Perfect trade Bricks.

I am sure your surgery will be perfect.:)

percy

23-08-2010, 12:20 PM

BRICKS is of to hospital for major surgery and hopes he will come out alive so before going SOLD 2000 RBD just to say
well I collected some money for all our efforts so with all this current crap talk about up`s & downs BRICKS would
rather have FULL HEALTH.. GOOD LUCK..

I was just thinking about you.Was going to look out for you at SCY's AGM tomorrow.All the best with the major surgery,and I look forward to you keeping us updated on your health.

Snoopy

23-08-2010, 06:39 PM

BRICKS is of to hospital for major surgery and hopes he will come out alive so before going SOLD 2000 RBD just to say well I collected some money for all our efforts

Glad you managed to get out on top Bricks. And thanks for the moral support on this investment over the years. I hope the hospital rebuild goes as well as you can expect, and get back to us when you are back up to speed. You certainly will never be 'just another brick in the wall' here.

SNOOPY

Snoopy

23-08-2010, 06:55 PM

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1635061

Thanks for that Phaedrus. Some think that Buffett invests always along the lines of one investing model, as outlined in those Buffett books. But this isn't true. Buffett frequently takes advantage of short term arbitrage opportunities. For example after a takeover offer is announced he often buys into the takeover target. Often the returns on these plays are quite small in percentage terms. But the high certainty of a result, Berkshire's scale and the ability to repeat the process on a subsequent takeover target means that from an annual perspective, these deals can be lucrative. That helps explain many of those short term deals identified in the research paper.

SNOOPY

Lizard

17-09-2010, 06:23 PM

Buy back the "pizza hutt" domain from Domino's (for patrons in Upper Hutt and Lower Hutt that are confused about how to spell "Hut")
Insist that after 1 year/5 long-winded phone calls to our help desk, that our web-site should be able to take delivery orders from Porirua for houses previously covered by (now defunct) Mana.
Consider retiring delivery staff that are too old to recognise current New Zealand currency or provide correct change to such in under 5 minutes.
Check that BRICKS has recovered from surgery...

:)

Sauce

17-09-2010, 06:32 PM

5. Check that Snoopy is OK after the earthquake..

Not a peep from him since then, hope his family and abode are all good.

percy

17-09-2010, 08:10 PM

5. Check that Snoopy is OK after the earthquake..

Not a peep from him since then, hope his family and abode are all good.

I note SNOOPY posted on NZ Farming Systems Uruguay thread yesterday at 1.41pm.

h2so4

20-10-2010, 11:33 AM

Geez that 1/2 year went quick. Might have to check I'm looking at the right report.

I only had time for a quick glance at the report but it looks like a solid result yet again.:)

Snoopy

20-10-2010, 01:00 PM

it looks like a solid result yet again.

SSD, $13.5m NPAT for the half year is earnings of 13.7cps. Only 7c of that being paid out as an interim dividend, so debt continues to be paid down rapidly. If RBD match the 8c divi final from last year, RBD is on a gross yield of 8.1% priced at $2.65. Divi of 15cps more than sustainable long term. The projected $24m full year profit puts RBD on a PE ratio of 10.7. RBD overvalued yet? Nope, looks like a very good yield play to me at $2.65. That fellow Creedy seems to be making a habit of underpromising and overdelivering. The worse the economy gets it seems, the better it is for RBD! Bring on the double dip recession!

SNOOPY

h2so4

20-10-2010, 04:28 PM

RBD overvalued yet? Nope, looks like a very good yield play to me at $2.65.

You are rightrightrightrightright...............:)

I only see good stuff here.;)

Phaedrus

20-10-2010, 04:35 PM

A glance at the chart tells us that, in spite of today's jump in price, the long RBD uptrend continues to decelerate. Such a price curve has the effect of triggering many premature "sell" signals when utilising "straightline" indicators such as trendlines. You can see that there are 6 trendlines marked in light green and all have given premature "sell" signals. Note, however, that none of these signals were ever confirmed by any of the other 8 indicators being used to monitor this stock. It is easy to see that none of these indicators are anywhere near triggering sell signals. To act on any single, unconfirmed signal is unwise.

Some people claim that the use of charts and TA leads to "overtrading". There is no sign of that here - in fact, it is the fundamentalists that were actively buying RBD all the way down - and have been selling on the way up! Now that is overtrading!

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD1020.gif

macduffy

20-10-2010, 04:52 PM

Thanks, Phaedrus.

But what is the signoficance of the 7.6% trailing stop?

Is that a meaningful level or has it been retro-fitted to demonstrate the danger in setting a stop too tight? I must admit to a certain uneasiness when I set trailing stops - usually I work on the basis of the amount per share ( expressed then as a total dollar amount ) that I am prepared to lose, or forgo profit. Tends to often bump me out too soon!

Phaedrus

20-10-2010, 05:15 PM

Indicators shown here have been set to the low of September 2009, as marked by the dotted grey line. The Trailing Stop was set at 7.6% because a value any smaller than that would have triggered earlier sell signals, flicking you out of this splendid uptrend - if you were foolish enough to act on isolated signals from a single indicator.

moimoi

20-10-2010, 06:19 PM

Thank you Phaedrus.

Snoopy

21-10-2010, 12:46 PM

Some people claim that the use of charts and TA leads to "overtrading". There is no sign of that here - in fact, it is the fundamentalists that were actively buying RBD all the way down - and have been selling on the way up! Now that is overtrading!

Selling on the way up, (my first sale of RBD shares since it listed in 1997 BTW), Phaedrus, has delivered me the cash I will need for a cash issue in a different share that has been well signalled. Others will have their own opinion as to whether one sale in 13 years is 'overtrading'. Despite this sale, my holding in RBD is still valued at more than twice my next most significant NZX investment. So I'm still getting more than my share of the benefit of the RBD uptrend.

SNOOPY

castelinop

30-10-2010, 07:02 PM

I am enjoying the ride up with RBD and have no complaints. My view is that the prospect for RBD's long term future is positive.

gregrday

02-11-2010, 02:42 PM

Hey guys, just written a quick blog post re: RBD, check out gregnz.wordpress.com. (http://gregnz.wordpress.com). Its the first part of my evaluation, which will lead to a assessment sheet based on valueline (check out the one I did previously for Michael Hill for an eg).

Hope it ends up useful!

cheers
Greg

Snoopy

02-11-2010, 11:26 PM

Hey guys, just written a quick blog post re: RBD,

I noticed you got through your entire RBD blog without mentioning reading the chicken entrails Greg! I am not sure that is acceptable in this forum (which is why you posted 'over there' I suppose).

Seriously though, what are all the Grans and Gramps going to do when they realise the rules at the bank have changed and they see those 6 and 7 percent term deposit rates they had banked on to fund their golden retirement are no longer available? Will 4 to 5% cut it? Are there any finance companies left that can pay more than that without serious risk of capital loss? Perhaps the idea of an established income share paying a 5% steady return as a way out of poverty street has some merit?

SNOOPY

gregrday

03-11-2010, 04:36 PM

Ah, reading entrails is part 2 of my report... as is doing a reading of the remains of a double-cream super frothed lime flavoured frapuccino with chocolate sprinkles and extra cream. ie, a starbucks coffee.

I also worry about people sitting on term deposits with low rates, and not really seeing the sharemarket as a viable alternative. I know people say "the sharemarket is not for everyone", but... I disagree. Everyone should have some exposure to shares, but... Im not much of a believer in index funds, and I am a believer in no free lunches, so I'm not sure what the grans and gramps will do. But a RBD, with prospect of some further upside and a fairly solid looking dividend should be thought about at least!

In my opinion, everyone in the country should own at least 1 RDB share, in order to get an invite to the AGM. There, you get free pizza and KFC, which, if converted into a 'dividend' would be about 300+% per year, given that everyone can eat $10 worth of pizza and kfc. Thats smart investing!

cheers
Greg

Snoopy

06-11-2010, 10:00 AM

Ah, reading entrails is part 2 of my report...

In case this reference is a little obscure for some readers, 'reading the entrails' was a euphemisim for judging the investment suitability of RBD by share price charts. I have certainly taken a 'scriptual beating' for ignoring the charts myself on this thread. However, I found that if you are prepared to ride across business cycles -which by definition chartists don't do- it doesn't matter what direction the share price is going provided you are buying at a cheap price, based on average trading condition business fundamentals. I also acknowledge that I have been lucky that the Van Arkel/Creedy leadership has reinvented RBD so magnificently. My 'time in the market' (13 years for RBD) eventually made me luckier. Looking forward to your part 2 Greg. Make sure you are wearing teflon armour when you publish though!

SNOOPY

h2so4

06-11-2010, 12:46 PM

My 'time in the market' (13 years for RBD) eventually made me luckier. Looking forward to your part 2 Greg. Make sure you are wearing teflon armour when you publish though!

SNOOPY

A little older and a little wiser aye snoopy:)

Snoopy

07-12-2010, 05:01 PM

I found that if you are prepared to ride across business cycles -which by definition chartists don't do- it doesn't matter what direction the share price is going provided you are buying at a cheap price, based on average trading condition business fundamentals.

The chart below summarizes my last five years involvement with Restaurant Brands.

3086

As a buy and hold over the five year study period RBD has been pretty attractive. But to add to my initial holding I was buying all the way along as the share price slid down. Those purchases turned out to be very astute at what in today's terms are rock bottom prices. By more or less doubling the amount of money that I had thrown at Restaurant Brands over this five year study period, my incremental investment was acquired at far less than the buy and hold price. The fact that on average I held those incremental shares for just 27 months, verses 5 years for my original holding also greatly enhanced the capital efficiency of this investment. The result was a stunning investment performance. However some might add it needed to be, given the less than satisfactory returns of other shares in my income portfolio.

SNOOPY

Snoopy

14-12-2010, 03:06 PM

Hey guys, just written a quick blog post re: RBD, check out gregnz.wordpress.com. (http://gregnz.wordpress.com). Its the first part of my evaluation,

Hey Greg, how's part two of that valuation going? There has been some share price weakness of late with RBD dropping from $2.70ish to $2.60ish. However a SSH notice today reveals that the wiley Brian Gaynor is at work boosting Milford Asset Managemnets holding to above 7% now.

SNOOPY

gregrday

17-12-2010, 08:06 PM

Sorry Snoopy, been super busy. Will try and sort it this weekend. Have been watching the share price slide too, my basic feeling is it could be a bit undervalued. I sold out at 2.35, so might be looking to get back in.

cheers
Greg

Snoopy

18-12-2010, 10:33 AM

Have been watching the share price slide too, my basic feeling is it could be a bit undervalued.

Always good to get different peoples views on these things. Just to prove people have different ways of looking at things, check out what valuecruncher think.

http://www.valuecruncher.com/companies/7380

At the time of writing they see a fair value price for RBD as $5! Further looking at their site suggests that they are using valuation norms implied by Starbucks, McDonalds and YUM Brands. There is a rig difference between these three and RBD. RBD doesn't own any of the intellectual property associated with any restaurant chains, and is in fact a licenscee of YUM (KFC and PIzza Hut) and Starbucks (their Starbucks cafes). That means RBD does not have the same global growth potential of the others. To my mind valuecruncher are not comparing like with like, and as a result the company multiples they use for their valuation in this instance is flawed.

It is nice to dream though. If valuecruncher staff want buy my RBD shares at $5 each, then I will happily sell.

SNOOPY

POSSUM THE CAT

18-12-2010, 03:10 PM

SNOOPY may be it is the other way round. They possibly have a lot they want to sell.

gregrday

19-12-2010, 03:04 PM

gregrday

19-12-2010, 03:10 PM

Hi Snoopy

Its actually pretty easy to get RBD at a $5 valuation, without using any crazy growth multipliers. Dropping the cost-of-capital from 7.7% to 7% and decreasing the required reinvestment rate to 20% gets you pretty close. My own feeling (although I haven't looked deeply into it) is that the WACC could be dropped a bit, since RBD have some crazy cheap (4.7%) bank loans. Can RBD sustain operations at a 20% (or $6million) reinvestment rate? And as mentioned above, there is probably still a bit of upside in the KFC refurbishment program which has yet to filter through.

The big question is, are people going to continue eating deep fried chicken at the same rate? I can't really see why not. Maybe I need to ditch MHI and get back to RBD...? :-)

cheers
Greg

Snoopy

20-12-2010, 04:28 PM

Hey guys, latest RBD analysis up at http://gregnz.wordpress.com.

Let me know what you think, whether I have made any errors etc. Note, I havent tried to separate out the different components of RBD, but essentially am treating Starbucks and Pizza Hut as slow going concerns. I also havent factored in any remaining growth from the KFC refurbishment program, instead treating that as an additional margin of safety.

Interesting your treatment of commercial leases as a kind of debt. For those of us with memories longer than your spreadsheet, RBD used to own most of their properties and sold them off. Some argued at the time it was smoke and mirrors and virtually profit neutral, with the new rent payments offsetting the depreciation and amortization on the once owned properties. Of course all of this was before John Key's depreciation tax reforms. I guess you are arguing that it was really a 'debt neutral' exercise as well, and you may have a point.

The property sell off was done IIRC with RBD signing 10 years leases with a right of renewal. That meant potential property buyers could confidently bid with a guaranteed income stream. I have often wondered if that income stream represented real 'market value'. By that I mean if RBD moved out of those properties would the new hapless property owner stand any chance of signing another tenant at the same rent rate? Would be interested to find out what happened to those properties that RBD has since moved out of!

But if any of those properties were sold 'rent high', you might argue that getting rid of them was actually a very smart move from a debt perspective.

SNOOPY

Snoopy

20-12-2010, 04:44 PM

I also havent factored in any remaining growth from the KFC refurbishment program, instead treating that as an additional margin of safety.

I guess the key point in your analysis Greg is whether RBD can continue generating that $20m of free cash flow every year. People continuing to eat the same amount of fried chicken as they do now is one prerequisite. The other is that costs continue to be contained. IMO and somewhat perversely, the longer as the NZ economy remains weak, the better for KFC (sorry RBD) shareholders!

CEO Russel One 'l' Creedy is on record as saying he would like to sell Starbucks and reinvest that money into KFC. One thing you haven't put into your analysis I believe are the one off fees to open a new KFC store and ongoing franchising fees on every store payable every decade or so. Creedy has also shown interest in starting up a new restaurant chain, an exercise which is sure to be cashflow negative until it builds to a critical mass in five years or so. I agree that any 'extra growth' from the KFC refurbishment is a bonus, but I am not sure if that isn't balanced out by the negative cashflow effects that I am talked about at teh opening of this paragraph.

SNOOPY

Snoopy

20-12-2010, 04:48 PM

Dropping the cost-of-capital from 7.7% to 7% and decreasing the required reinvestment rate to 20% gets you pretty close. My own feeling (although I haven't looked deeply into it) is that the WACC could be dropped a bit, since RBD have some crazy cheap (4.7%) bank loans.

If the RBD cost of capital is less than the RBD earnings yield, can you not make a case for a valuation of RBD to be as high as you like?

SNOOPY

gregrday

21-12-2010, 05:11 PM

Yes, the 20m free-cash-flow is critical. Anything that drops it below this would obviously affect the valuation. It should be noted that they havent actually ever achieved that, although they have come close. So, going up a level, RBD need to a) control costs and b) control capital expenditures, and c) continue to sell lots of chicken.

If they looked at starting up another franchise, I would get out completely. I'm not convinced they have expertise in that area, when all that has currently happened is the successful turn around of 1 of their brands.

But in any case, at the moment, I think RBD looks a bit undervalued. Pity I have no cash... damn tax!

gregrday

21-12-2010, 05:17 PM

"If the RBD cost of capital is less than the RBD earnings yield, can you not make a case for a valuation of RBD to be as high as you like?"
(oops, missed the reply with quote button)

I'm not sure about this, the earnings yield is NP/enterprise value? So as valuation goes up, earnings yield comes down? I might be misunderstanding...

I also looked at the latest PWC cost-of-capital report (which I should have used since it came out in June), which has the WACC for RBD at 7.4%, rather than the 7.7% I used. So that would push the forecast price up even further... So my fair value estimate is around $3.5, which I wish I had worked out before selling at $2.35... :-) Be interesting to see how it plays out, now I've got a number to aim at!

gregrday

25-01-2011, 11:45 AM

No, I believe its the Greg effect, where I buy some shares and then they drop 10%. I have an amazing ability to influence markets...
I should set up a reverse-Greg fund, which sells when I buy, and buys when I sell.

However, I still believe RBD is undervalued, unless theres some actual news...

cheers
Greg

Snoopy

01-02-2011, 07:48 PM

Snoopy wrote:
"If the RBD cost of capital is less than the RBD earnings yield, can you not make a case for a valuation of RBD to be as high as you like?"

I'm not sure about this, the earnings yield is NP/enterprise value? So as valuation goes up, earnings yield comes down? I might be misunderstanding...

I also looked at the latest PWC cost-of-capital report (which I should have used since it came out in June), which has the WACC for RBD at 7.4%, rather than the 7.7% I used. So that would push the forecast price up even further... So my fair value estimate is around $3.5, which I wish I had worked out before selling at $2.35... :-) Be interesting to see how it plays out, now I've got a number to aim at!

Gregr, I think my comment was slightly screwed up. What I was trying to say in an overly twisted way is that I think there are some issues regarding the appropriate discount rate that should be used to value RBD.

In an extreme situation it would be possible to have a discount rate greater than the earnings growth rate. With the benefit of hindsight, this is what has happened with RBD. I would argue that five years ago RBD was a $12.5m per year profit company given normal business conditions. I would equally argue today that RBD is a $25m per year profit company. That is very roughly a 15% compounding growth rate of 'underlying earnings' over 5 years. As long as the PWC discount rate for RBD was under 15% over those 5 years (and I think it was, let's make it 10%), then when we work out the present value of that underlying earnings growth pattern from a 2006 perspective then an interesting thing happens:

2006: $12.5m
2007: $12.5m x (1.15/1.1)= $13.0m
2008: $12.5m x (1.15/1.1)^2 = $13.6m
2009: $12.5m x (1.15/1.1)^3 = $14.2m
2010: $12.5m x (1.15/1.1)^4 = $14.9m
2011: $12.5m x (1.15/1.1)^5 = $15.6m

What we have here is an increasing earnings number every year, even though these future earnings are being discounted back to 2006 dollars. If this trajectory were to continue you could argue that the PV of Restaurant Brands earnings (from a 2006 perspective) can be as high as you like by just looking out into the future far enough. Obviously this is not possible, so there is some fantasy going on within this calculation somewhere. But the average earnings growth of 15% that I used is not the fantasy, because this is the actual growth rate achieved in this period (we know this with the benefit of hindsight). That means something else must be wrong, and the only thing in that equation not based on fact is the discount rate. The discount rate must be higher than the earnings growth rate to obtain a convergent share valuation.

Of course the other thing that must happen foir this farcical divergent valuation to be true is that earnings must keep growing at above 10% indefinitely. Clearly this also is unlikely, although we may get an average 10%+ growth rate for 10 years, and 10 years is 'indefintely' for some investors. I used the 10% average discount rate for ease of calculation but in reality I think the PWC discount rate for RBD over that period would have been less. That means my example as presented is conservative.

The point I am trying to make ( I think! )is that the PWC discount rate for RBD can never have been as low as they suggested. The whole basis for their calculation cannot be right, even if the actual mathematics they used to calculate that figure contains no computational errors. This is why I take these discount rates very cynically.

SNOOPY

Snoopy

01-02-2011, 08:16 PM

Charts suggest RBD has peaked out. Everyone out now?

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. At $2.45 RBD is on a PE of around 9. For a company that has steady growth prospects this PE is too low.

An article appeared in the Auckland Herald last week pointing out that Kiwi's had not taken to Starbucks and it was effectively a dog. Russel Creedy would be able to admit that finally when he sold the whole lot onwards as a growing concern. This is old news.

There have been also articles in the press about how tough a time retailers are having. Interestingly, RBD was forced to make a statement to the stock exchange in mid January 2011 that unlike other retailers, RBD profits are in fact on track to grow strongly.

IMO the selling down of RBD has happened for no reason, as part of a flow on effect from other retail shares. RBD is probably now the cheapest share on the NZX when considering just the fundamental valuation. IMO those selling out of RBD over the last month or so are either pure chartists, or insane.

SNOOPY

h2so4

02-02-2011, 02:14 PM

IMO the selling down of RBD has happened for no reason, as part of a flow on effect from other retail shares. RBD is probably now the cheapest share on the NZX when considering just the fundamental valuation. IMO those selling out of RBD over the last month or so are either pure chartists, or insane.

SNOOPY

Well SD, they may have found something of more value, but they certainly are not going to tell us. I accept your most likely explanation that they have probably gone mad.:)

gregrday

04-02-2011, 09:38 AM

Gregr, I think my comment was slightly screwed up. What I was trying to say in an overly twisted way is that I think there are some issues regarding the appropriate discount rate that should be used to value RBD.

In an extreme situation it would be possible to have a discount rate greater than the earnings growth rate. With the benefit of hindsight, this is what has happened with RBD. I would argue that five years ago RBD was a $12.5m per year profit company given normal business conditions. I would equally argue today that RBD is a $25m per year profit company. That is very roughly a 15% compounding growth rate of 'underlying earnings' over 5 years. As long as the PWC discount rate for RBD was under 15% over those 5 years (and I think it was, let's make it 10%), then when we work out the present value of that underlying earnings growth pattern from a 2006 perspective then an interesting thing happens:

2006: $12.5m
2007: $12.5m x (1.15/1.1)= $13.0m
2008: $12.5m x (1.15/1.1)^2 = $13.6m
2009: $12.5m x (1.15/1.1)^3 = $14.2m
2010: $12.5m x (1.15/1.1)^4 = $14.9m
2011: $12.5m x (1.15/1.1)^5 = $15.6m

What we have here is an increasing earnings number every year, even though these future earnings are being discounted back to 2006 dollars. If this trajectory were to continue you could argue that the PV of Restaurant Brands earnings (from a 2006 perspective) can be as high as you like by just looking out into the future far enough. Obviously this is not possible, so there is some fantasy going on within this calculation somewhere. But the average earnings growth of 15% that I used is not the fantasy, because this is the actual growth rate achieved in this period (we know this with the benefit of hindsight). That means something else must be wrong, and the only thing in that equation not based on fact is the discount rate. The discount rate must be higher than the earnings growth rate to obtain a convergent share valuation.

Of course the other thing that must happen foir this farcical divergent valuation to be true is that earnings must keep growing at above 10% indefinitely. Clearly this also is unlikely, although we may get an average 10%+ growth rate for 10 years, and 10 years is 'indefintely' for some investors. I used the 10% average discount rate for ease of calculation but in reality I think the PWC discount rate for RBD over that period would have been less. That means my example as presented is conservative.

The point I am trying to make ( I think! )is that the PWC discount rate for RBD can never have been as low as they suggested. The whole basis for their calculation cannot be right, even if the actual mathematics they used to calculate that figure contains no computational errors. This is why I take these discount rates very cynically.

SNOOPY

Hey Snoopy,
ah, I understand now... bit slow really. But the situation you describe is quite plausible isn't it? We know that companies in the long-term cant grow past the rate of inflation, so the terminal growth rate is the big factor there. So the discount rate could have been... 'accurate'. To be honest, I've been a bit lazy using the PWC WACCs, I should really be calculating my own. But my feeling is that given the RBD bank loan interest rates are pretty low, around 7-8% is probably more-or-less reasonable.

cheers
Greg

Snoopy

04-02-2011, 10:07 AM

The situation you describe is quite plausible isn't it? We know that companies in the long-term can't grow past the rate of inflation, so the terminal growth rate is the big factor there. So the discount rate could have been... 'accurate'. To be honest, I've been a bit lazy using the PWC WACCs, I should really be calculating my own. But my feeling is that given the RBD bank loan interest rates are pretty low, around 7-8% is probably more-or-less reasonable.

Not sure that I would agree that companies 'long term' can't grow past the rate of inflation, although I guess that depends on your definition of 'long term'. Over 5 years net profit at RBD grew by 15% compounding per year, yet inflation was probably about 3% compounding. Even if RBD profits stagnate for the next 5 subsequent years we are still looking at something around a 7% compounding growth rate over 10 years to 2016. That is way ahead of inflation and I think ten years would qualify as long term for many investors.

It is admirable of you to suggest calculating your own WACC and I am sure you could do at least a good a job as PWCC. However, IMO improving the mathematical precision of your figures will not cut much ice if the underlying method is dodgy. Sacriligious talk to some accountants I guess. Perhaps WACC as popularly understood works for most companies. But I am more interested in the 'outlier performance' of the 'best investments', not the average. And I don't think WACC works very well there.

The problem as I see it is that if a company is growing very fast, the WACC discount rate must be higher than the growth rate to produce a convergent share valuation. In my actual RBD example a 10% discount rate was not high enough, even though PWC"s calculated rate was lower and your own estimate is probably lower still.

Because of the industry in which RBD operates (food), their strong market position and access to a globally significant franchise parent I would argue that the true future earnings discount factor should be even lower, perhaps only 6%. But of course industry sector, strong market position and the global muscle of the franchise parent are not included in any WACC calculation. To investors seeking market outperforming returns I am not sure that teh concept of WACC and discount rates as popularly defined are very useful. But I would be happy if someone can convince me otherwise.

SNOOPY

h2so4

05-02-2011, 10:56 AM

SD, you don't think Warren uses a discount rate? That's interesting.

Sauce

05-02-2011, 12:54 PM

SD, you don't think Warren uses a discount rate? That's interesting.

Hi h2,

I think snoopy is challenging the method that one arrives at an appropriate discount rate, rather than saying one is unnecessary.

Buffett and Munger have often commented that the standard WACC caculation is fundamentally flawed because the formula includes a calculation of "Beta" which is a measure of share price volatility that is used to estimate risk. They deem this as irrational because in their opinion short term share price volatility is not necessarily related to the underlying fundamental business risk.

It appears that Buffet prefers to take the risk free rate of return (long term treasury bonds) and add a few percentage points to this for the "risk" attached to business ownership; presumably the amount added changes from company to company. He also provides the caveat that its not wise to drop ones discount rate too low in times of super low interest rates (such as now).

Snoopy, please correct me if I am wrong, but in more general terms I think you are saying this: Rather than bother with esoteric WACC formulas, why not just make your best judgement as to what is an appropriate rate of return that a rational investor would expect from the business based upon its quality and the risk of being in business, and use that as your discount rate?

I hope you don't mind me jumping in here but I am trying to learn as much as possible about valuation methodology at the moment and I am enjoying your discussion!

Regards,

Sauce

h2so4

05-02-2011, 01:25 PM

Hi h2,

I think snoopy is challenging the method that one arrives at an appropriate discountIt appears that Buffet prefers to take the risk free rate of return (long term treasury bonds) and add a few percentage points to this for the "risk" attached to business ownership; presumably the amount added changes from company to company. He also provides the caveat that its not wise to drop ones discount rate too low in times of super low interest rates (such as now).

Regards,

Sauce

Why would it change from company to company? Isn't $1m cashflow from Grandmas Trotters the same as $1m cashflow from Coca Cola?

winner69

05-02-2011, 02:00 PM

Why would it change from company to company? Isn't $1m cashflow from Grandmas Trotters the same as $1m cashflow from Coke a Cola?

They are the same of course

But in this discussion the $1m cash flow is a forecast / projection / calculation ... and the problem / question is what would pay to get a forecasted $1m from Grandma's Trotters and how much for the Coke $1m

Some analysts don't use WACC at all ...... they do cashflows under many scenarios and by applying probabilities against each come up with an expected value of the cash flows and use those as the basis of their valuations

Note the words applying probabilities and expected ... see it all really is a big guess (OK best guess / judgement) ... just like the equity premium used in WACC calculations is and just like what Warren might use

So back to Grandma and Coke ... what is the likliehood of those $1m cash flows actually be achieved

Sauce

05-02-2011, 02:06 PM

Hi Snoopy, Gregday

Is it possible you guys are kind of saying the same thing in different ways here

Snoopy says:

Of course the other thing that must happen foir this farcical divergent valuation to be true is that earnings must keep growing at above 10% indefinitely. Clearly this also is unlikely, although we may get an average 10%+ growth rate for 10 years, and 10 years is 'indefintely' for some investors. I used the 10% average discount rate for ease of calculation but in reality I think the PWC discount rate for RBD over that period would have been less. That means my example as presented is conservative.Greg says:

We know that companies in the long-term cant grow past the rate of inflation, so the terminal growth rate is the big factor there. So the discount rate could have been... 'accurate'.If you are using a straight line formula you clearly cannot have a growth rate that is higher than the cost of capital. Bruce Greenwald, professor of value investing at Columbia university says this:

"The limits of sustainable growth are some fraction of the cost of capital. As we said, if growth equaled or exceeded the cost of capital, the return on capital would be infinite."

Exactly as snoopy shows. But since markets have limited sizes and competition, double digit growth rate for a straight line formula that assumes the growth rate indefinitely is basically absurd anyway isn't it?

So no matter how high the historical and near term growth rate is, if you are using a straight line formula you should accept that the long term growth rate will be lower than your cost of capital, as greenwald suggests. Alternatively use a DCF that combines an initial high growth period with a nominal terminal growth rate, exactly as Greg suggests.

I am still grasping these ideas and my maths is shaky at best, so please forgive me if I am simply displaying my ignorance here :)

Cheers

Sauce