RBD - Restaurant Brands [Archive] - Page 7

Sauce

05-02-2011, 02:32 PM

Why? Their cashflows are exactly the same. If you have a lower discount for Coke and a higher discount for Grandma then you wont be able to compare the two.

Their cashflows are exactly the same, but you already hit the nail on the head. You would pay more for cokes cashflows due to its greater certainty, and so would others, so you could discount cokes cashflows back to todays value at a lower rate of return (discount rate). This reflects that you are happy to pay more for those cashflows in a higher valuation of them.

By using a higher discount rate for Grandmas, you are building in more conservatism due to the risk. In other words you are demanding a higher rate of return.

i.e. you are paying less for the cashflows of grandmas than you would for Coke by using different discount rates in your valuation, exactly as you said you would.

As Winner said:

what is the likliehood of those $1m cash flows actually be achievedYou have already correctly implied they are not strictly comparable due to differences in quality, so therefore to compare Grandmas & Coke as potential places for your hard earned cash, you actually require different discount rates for each. I think this is partly the point. You actually make them more comparable as a potential investment.

Regards,

Sauce

P.s. Thinking of a discount rate as an investors "required rate of return" might be helpful. If investors are willing to pay more for certainty, then it makes sense to me that a lower discount rate could be used for more certain cashflows and a higher discount rate could be used for less certain cashflows.

h2so4

05-02-2011, 02:48 PM

Sauce you are right, I concede I concede I concede.:)

It seems to me that you are changing the discount rate to fit the valuation.

I will leave you with a quote from Buffett.

"Don't use different discount rates for different businesses...it doesn't really matter what rate you use as long as you are being intellectually honest and conservative about future cash flows."

Sauce

05-02-2011, 03:09 PM

Sauce you are right, I concede I concede I concede.:)

It seems to me that you are changing the discount rate to fit the valuation.

I will leave you with a quote from Buffett.

"Don’t use different discount rates for different businesses…it doesn’t really matter what rate you use as long as you are being intellectually honest and conservative about future cash flows."

Heh thanks for this h2

Ok Maybe Buffett doesn't. But I think my explanation is consistent with why people generally do use different discount rates for different companies.

I certainly remember reading somewhere that Buffett did not think it was correct thinking to substitute a high discount rate as your margin of safety. But theres no doubt that using a higher discount rate lowers the valuation and therefore makes it more conservative (generally a good thing).

Cheers

:)

h2so4

05-02-2011, 03:29 PM

Heh thanks for this h2

Ok Maybe Buffett doesn't. But I think my explanation is consistent with why people generally do use different discount rates for different companies.

I certainly remember reading somewhere that Buffett did not think it was correct thinking to substitute a high discount rate as your margin of safety. But theres no doubt that using a higher discount rate lowers the valuation and therefore makes it more conservative (generally a good thing).

Cheers

:)

Yes you are right.:):):)

gregrday

06-02-2011, 07:46 PM

Hi Snoopy

sorry, inflation rate should have been "growth rate of economy"... was looking at some inflation calculations and answered in a hurry. So, my statement should have been "long term companies cannot grow faster than the growth rate of the economy, and will probably grow less than that".

so... the question is, what is long term? In DCF, long term is measured as... infinity. So, a company can have a high growth period, but for the terminal calculation, the growth rate <= growth rate in economy. So the WACC doesnt need to be higher than the growth rate in the 'short' (ie, non-infinity) term.

not sure if this helps, or hinders!
cheers
Greg

gregrday

06-02-2011, 07:54 PM

Sauce

06-02-2011, 10:45 PM

@Sauce,

my understanding of beta is its fundamentally nothing to do with shareprice, but based on the efficient market hypothesis (bull$#!t), the shareprice always reflects correct value, and therefore variations in shareprice are supposed to represent real changes in value. When in fact they appear to reflect ... a whole lot of noise.

Damodaran suggests that betas consist of 3 variables. 1. The type of business, 2. Operating leverage, and 3. Financial leverage (debt-to-equity). So from 1., cyclical companies are more prone to reacting to external market conditions, so higher beta. 2., Operating leverage is fixed costs/total costs. The higher those fixed costs, the less... flexibility the firm has, so higher beta. 3... higher debt leverage means higher variability in income (like trading on margin!).

I'm not quite at the point of estimating my own betas, but might be fun on a rainy afternoon!
cheers
Greg

Hi Greg,

Thanks for this. I can see how calculating a WACC might be interesting as an academic exercise. It would certainly be beyond my ability to do.

I have spent a lot of time reading Damodaran's essays on valuation (with only fractional understanding!), he is a guru for sure, but my hunch is that complicated WACC calculations are not any more useful than the somewhat more practical method of simply choosing the figure you believe is the relevant rate of return for that business.

If you are interested in Buffetts methodologies (I know, Buffett's ideas are thrashed to death) you might find this interview with Alice Schroeder interesting:

http://www.youtube.com/watch?v=PnTm2F6kiRQ

Alice was given unfettered access to all his files and notes on every Berkshire and partnership investment and spent 2000 hours with Buffett when writing his biography. She does not believe buffet performs any forecasting or DCF valuation at all when making investment decisions, contrary to what most people think, and provides an interesting example in this seminar.

Regards,

Sauce

gregrday

07-02-2011, 10:01 AM

Hi Sauce, thanks for that link, very interesting. I have looked at buffet methodologies in the past, and found them pretty valuable, particularly just the simple concepts of having a defendable moat, catastrophic failure (Xero, I'm talking to you!) and not overpaying. My DCFs are generally (very!) conservative, and I use them to try and get more or less a worst case scenario.

I agree, the WACC is ... suspect, and potentially meaningless. My gut feeling is don't make it too low! I'm reasonably happy with the 7.7% because of RBDs low interest bank loans, and also because the rest of the valuation is very conservative in terms of growth.

I guess where I come from is: I'm not very good at this, so I need a big margin-of-safety before investing. Although RBD has had a big run-up, I still think it is pretty undervalued on a very conservative basis. Time (probably the next earnings release) will tell...

cheers
Greg

h2so4

07-02-2011, 10:08 AM

Hey Sauce thanks for that.:)

Snoopy

07-02-2011, 04:22 PM

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

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?

The way you have expressed it may make be sound a bit pratty and arrogant, but I think you have summed me up correctly Sauce. Actually I probably am a bit pratty and arrogant on this issue!

SNOOPY

Snoopy

07-02-2011, 04:59 PM

Why? Their cashflows are exactly the same. If you have a lower discount for Coke and a higher discount for Grandma then you wont be able to compare the two.

It seems to me that you are changing the discount rate to fit the valuation.

I will leave you with a quote from Buffett.

"Don't use different discount rates for different businesses...it doesn't really matter what rate you use as long as you are being intellectually honest and conservative about future cash flows."

SSD, I think you are making the point that at the end of the day a dollar from Granny's Trotters is as good as a dollar from Coca Cola. Myself, I have yet to hold a dollar coin that cared where it came from either! I was also interested in your quote from Buffett, so I took the trouble to look it up to find out the full context.

It seems to be from a Meeting with Warren Buffett on 28 Jan 2005, as part of some synthesised notes. The full note text on "Discount rates used for valuation" is as follows:

------------
Discount rates used for valuation:
- Use a long term normalized interest rate for Treasuries…e.g. 6%
- Don’t use different discount rates for different businesses…it doesn’t really matter what rate you use as long as you are being intellectually honest and conservative about future cash flows.
- Only want one variable to compare in order to assess the viability of an investment – price versus value. If we allowed discount rates to change it would lead to more than one variable.
- WB’s assessment of the risk of a company is baked into the probabilities for future cash flow scenarios of the company
- “I don’t know what the true cost of capital is for a business unless we own it”
-----------

I would be interested if anyone has a different opinion. But my own take from these five bullet points is that Warren is very concerned with the quality of future cashflows from companies he holds. He assesses this future cashflow quality by looking at a series of scenarios and forming a probabilistic view of what will happen. He doesn't favour any variation in discount rates, because that makes his analysis more complicated than it needs to be.

Another way of looking at this same problem is to get a feel for the risk depending on what industry the company you are analyzing is in, and base some variable discount factor on that. Over one or two years this method is IMO not very reliable. But over a business cycle I think it has merit, and it is probably easier to quantify than the various probabilistic scenarios that Warren goes to the trouble of working out. Thus my own variable discount factor is really a substitute for the variable probability scenarios that Warren is using. I am more focussed on a single long term likely scenario than Warren, and I use a variable industry discount factor to rate the likely accuracy of my prediction. If I were to use probabilistic alternative scenarios and a variable industry discount factor this would be too much information and lead to a confusing picture.

The important thing is to have a factor of safety in some form. If you do a full variation of scenario analysis as Warren does, that becomes your factor of safety. If you don't then having a variable discount factor is a legitimate, albeit not quite as sophisticated alternative.

SNOOPY

h2so4

07-02-2011, 05:30 PM

SD, Warren's instruction is very clear.

I didn't read too much into it and took his instruction verbatum.

Then I came to understand the reason. It puts every business you analyse, irrespective of industry, on the same level playing field.

KIS:)

Sauce

07-02-2011, 07:06 PM

I would be interested if anyone has a different opinion. But my own take from these five bullet points is that Warren is very concerned with the quality of future cashflows from companies he holds. He assesses this future cashflow quality by looking at a series of scenarios and forming a probabilistic view of what will happen. He doesn't favour any variation in discount rates, because that makes his analysis more complicated than it needs to be.

The important thing is to have a factor of safety in some form. If you do a full variation of scenario analysis as Warren does, that becomes your factor of safety. If you don't then having a variable discount factor is a legitimate, albeit not quite as sophisticated alternative.

SNOOPY

I think you are spot on Snoopy. But being concerned with the quality of future cashflows is not the same as trying forecast what they will be in the future with the sort of precision required for DCF valuation.

Snoopy Here is my (probably totally off the mark) own view on Buffetts methods ( in very general, simple terms )

Also you have to imagine you are Warren for this example, as it sounds easy, and probably is fairly easy now for Warren, but without his lifetime of experience and intelligence I think its very difficult:

Qualitative:

1. Does the business have a durable competitive advantage
2. Is it extremely improbable that something external (new technology etc) could derail the business
3. Are management extremely talented and honest

Quantitative:

4. Has the business been able to invest its retained earnings at returns well above the cost of capital ?
5. How much do I have to pay for equity in the business at prevailing prices?
6. Does a margin of safety exist?

(obviously actual work of assessing margins, debt levels, adjusting asset values to get true equity etc - who knows there could be all sorts of work that MIGHT go in, but this is my view on the points critical for valuation, if we were to put ourselves in Warren E. Buffetts shoes)

Now if you are Warren E. Buffett and you have answered yes to questions 1 - 3, then the balance of probability says that great business economics, if they exist, are highly likely to continue into the future. Therefore questions 4 - 6 require only basic maths, rather than a complex forecasting model.

For a company without growth that makes a high return on existing equity, but pays it all out to Warren to invest elsewhere, the calculation is this:

VALUE = (ROE/COC) x EQUITY

(ROE = Return On Equity and COC = Cost Of Capital)

And for the cashflows of a company that are being retained and re-invested in growth the equation is:

VALUE = ROE/COC x ROE/COC x EQUITY

or

V = (ROE/COC) ^ 2 x E

This assumes the ROE is sustainable, but Warren is only looking for businesses with a durable competitive advantage anyway. And because sustainably return on equity, above the cost of capital, is the inevitable product of a durable competitive advantage, it is implicit that he is confident the underlying economics are sustainable. (Not so easy in smaller markets like NZ I would guess... )

Now if you were Warren Buffett and you had spent your whole life analyzing companies, it would not be long before you could simply look at the return on equity and the price offered in relation to the equity on the balance sheet and you would know very quickly if it was a good deal or not.

Of course he is very concerned about the quality and probability of future cashflows. But this is my best shot at a guess at to how he operates and how he makes value decisions without forecasting precise future cashflows, terminal values etc.

Love to hear your thoughts on this Snoopy or anyone else.. I might be talking meaningless rubbish that is totally inaccurate but I would enjoy the banter.

With regards,

Sauce

h2so4

07-02-2011, 08:16 PM

Of course he is very concerned about the quality and probability of future cashflows. But this is my best shot at a guess at to how he operates and how he makes value decisions without forecasting precise future cashflows, terminal values etc.

Love to hear your thoughts on this Snoopy or anyone else.. I might be talking meaningless rubbish that is totally inaccurate but I would enjoy the banter.

With regards,

Sauce

Oh I'm pretty sure he does his future cashflow projections and valuation fairly accurately. Take a look at this quote.

"The investment shown by the discounted cash flow calculation to be the cheapest is the one that the investor should purchase irrespective of whether the business grows or does not, displays volatility or smoothness in it's earnings, or carries a high price or a low price in relation to its current earnings."

Snoopy

07-02-2011, 08:31 PM

SD, Warren's instruction is very clear.
I didn't read too much into it and took his instruction verbatum.

KIS:)

SSD, Warren's 'instructons' it seems have been reconstituted from the notepad of some journalist (albeit it appears quite a good one) who had a few hours of immersion with the great man. Any such pearls of wisdom that spilt from the journalistic notepad are always within a context. Yet if you think you can reproduce the work of Warren by self selecting a few bullet points you will probably do better than most.

I actually agree with your 'Keep things as simple as required' philosophy, but I would amend it as follows:

'Keep things as simple as required, but not simpler'

SNOOPY

Snoopy

07-02-2011, 08:37 PM

Snoopy Here is my (probably totally off the mark) own view on Buffetts methods ( in very general, simple terms )

Also you have to imagine you are Warren for this example, as it sounds easy, and probably is fairly easy now for Warren, but without his lifetime of experience and intelligence I think its very difficult:

Qualitative:

1. Does the business have a durable competitive advantage
2. Is it extremely improbable that something external (new technology etc) could derail the business
3. Are management extremely talented and honest

Quantitative:

4. Has the business been able to invest its retained earnings at returns well above the cost of capital ?
5. How much do I have to pay for equity in the business at prevailing prices?
6. Does a margin of safety exist?

(obviously actual work of assessing margins, debt levels, adjusting asset values to get true equity etc - who knows there could be all sorts of work that MIGHT go in, but this is my view on the points critical for valuation, if we were to put ourselves in Warren E. Buffetts shoes)

Now if you are Warren E. Buffett and you have answered yes to questions 1 - 3, then the balance of probability says that great business economics, if they exist, are highly likely to continue into the future. Therefore questions 4 - 6 require only basic maths, rather than a complex forecasting model.

With my reading of how Buffett's mind works, I think that is a good summary Sauce.

For a company without growth that makes a high return on existing equity, but pays it all out to Warren to invest elsewhere, the calculation is this:

VALUE = (ROE/COC) x EQUITY

(ROE = Return On Equity and COC = Cost Of Capital)

So what you have calculated here is the 'real return' on top of the cost of capital.

And for the cashflows of a company that are being retained and re-invested in growth the equation is:

VALUE = ROE/COC x ROE/COC x EQUITY

or

V = (ROE/COC) ^ 2 x E

So now you are taking the 'real return' and putting it through the sausage machine that has generated your returns (the company) so that it spits out your subsequent real return on profits earned as a 'return on your return'.

This assumes the ROE is sustainable, but Warren is only looking for businesses with a durable competitive advantage anyway. And because sustainably return on equity, above the cost of capital, is the inevitable product of a durable competitive advantage, it is implicit that he is confident the underlying economics are sustainable.

Yes :-)

(Not so easy in smaller markets like NZ I would guess... )

Yes :-(

Love to hear your thoughts on this Snoopy or anyone else.. I might be talking meaningless rubbish that is totally inaccurate but I would enjoy the banter.

Not sure you really need to go to the trouble of working out the return on the return. I use an ROE target of 15% minimum for new companies that I invest in. If say the cost of capital was 7%, I might equally say my target was 8% above the cost of capital. But what is the difference between that and a gross ROE target of 15%? I would say nothing.

SNOOPY

Snoopy

07-02-2011, 08:51 PM

Oh I'm pretty sure he does his future cashflow projections and valuation fairly accurately. Take a look at this quote.

"The investment shown by the discounted cash flow calculation to be the cheapest is the one that the investor should purchase irrespective of whether the business grows or does not, displays volatility or smoothness in it's earnings, or carries a high price or a low price in relation to its current earnings."

Context?

SNOOPY

h2so4

07-02-2011, 09:12 PM

Context?

SNOOPY

Whats up SD, can't google this one?

Sauce

07-02-2011, 10:05 PM

With my reading of how Buffett's mind works, I think that is a good summary Sauce.

Thanks!

So what you have calculated here is the 'real return' on top of the cost of capital.It is the value of the cashflow in perpetuity! in other words constant ROE, constant 100% payout and constant cost of capital.

It can also be expressed as:

INCOME/COC

Also known as, the "Earnings Power Value" (Greenwald).

So now you are taking the 'real return' and putting it through the sausage machine that has generated your returns (the company) so that it spits out your subsequent real return on profits earned as a 'return on your return'.
Yes! Its straight line compounding growth discounted at the cost of capital!

Not sure you really need to go to the trouble of working out the return on the return. I use an ROE target of 15% minimum for new companies that I invest in. If say the cost of capital was 7%, I might equally say my target was 8% above the cost of capital. But what is the difference between that and a gross ROE target of 15%? I would say nothing.

Well it allows you to put a value on compounding growth.

But you may be right. I doubt Buffett does needs to do too many of these calculations. I suspect he will intuitively be able to assess the value of the growth.

But for us lesser beings, this formula is a quicker, easier and simpler than spending hours developing full blown multi-growth-period cashflow forecasts and deciding on a terminal value and discounting it all back.

To stay on topic (of RBD), Lets pretend we are Warren E. Buffett, and use RBD for a working example and see how the output compares to Gregs more considered and worked DCF model:

We will assume we (Warren) have assessed RBD and it has passed our qualitative checklist.

(sorry ROE figures calculated on year end equity, which is not technically correct, but I am using hopeless ASB info sheet figures as I cant be bothered downloading annual report)

RBD had net ending equity of 50cps in 2010
RBD had earnings per share of 20cps in 2010

Therefore RBD had an ROE of 40% year end 2010

Now because this is a straight line formula, and the ROE determines your rate of growth, it would be foolish to use the very high recent ROE of 40% to determine the long term re-investment returns.

If we average out the last 9 years return on ending equity we get average ROE of 22.72% this seems like a fair long term economic return for a very well run company with competitive advantages, and is historically accurate, so lets run with this.

As we are comparing this valuation method to Gregday's lets use his Cost Of Capital to be consistent.

COC = 7.7%

In 2010 RBD paid out 40% of its profits as dividends. So we have to be careful not to accidentally compound those profits as they will not be reinvested. So the formula becomes:

V = (ROE/COC) * E * D% + (ROE/COC) ^2 x E * (1-D%)

Where D% is the ratio of profits paid out in dividends.

For RBD this is

(22.72% / 7.7) * 0.50 * 0.40 = 0.59cps

+

(22.72% / 7.7) ^ 2 * 0.50 * 0.60 = 2.61cps

= $3.20

= "INTRINSIC" VALUE OF RBD

CURRENT MARKET VALUE = $2.40

MARGIN OF SAFETY = 33%

This is very close to Gregs valuation of $3.58 which is encouraging.

Most importantly, and this is key in my opinion, for this type of valuation to be a "good guess", we MUST be confident that competitive advantages exist that will keep returns higher than the cost of capital for the long term, in which case a straight line formula is totally sufficient. And of course this may not work for all investments or for every investor, or even every market. However, in context with the discussion, it would work for Buffett as he is searching in a huge market for businesses with an unassailable moat.

At least it only takes a few minutes to do!

What do you guys think?

Cheers

P.s. I just realised these figures are of course old now and we are in reporting season, so with new data and more equity on the balance sheet, the value will be higher and margin of safety greater.

mamos

08-02-2011, 01:00 PM

Hi Sauce and others,

Thanks for the great thread. I have learnt a lot from this thread and the RYM one also.

What you have written is exactly what Roger Montgomery (formerly of Clime Capital) and their Stockval program uses to calculate intrinsic value, except they use a power of 1.8 rather than 2 probably to be more conservative.

http://www.stockval.com.au/documents/Company_Valuation_-_Clime_branding_080923.pdf is a good read it details more about Graham Value investing and the Stockval approach and some of pitfalls of DCF.

Agree it is useful to use a long run ROE rather than top of cycle. This is where a lot of companies came unstuck in GFC, although EPS was generally increasing at the same rate as stock prices, earnings were top of cycle, buoyed by extensive credit growth.

3208

Like you say the companies must exhibit a strong competitive advantage and moat or barriers to entry to preserve the consistent ROE.

I agree with the comments on discount rates also. I consider it as the return an investor requires as an owner of the business.

The finance community use beta as it is an objective measure that standardises the valuation process. However, whether it is an accurate measure of risk is another story.

Keep up the good thread.

Snoopy

08-02-2011, 04:20 PM

Sauce wrote:
---------------
"For a company without growth that makes a high return on existing equity, but pays it all out to Warren to invest elsewhere, the calculation is this:

VALUE = (ROE/COC) x EQUITY

(ROE = Return On Equity and COC = Cost Of Capital)"

Snoopy commented:
-----------------------
"So what you have calculated here is the 'real return' on top of the cost of capital."

Sauce wrote:
---------------
And for the cashflows of a company that are being retained and re-invested in growth the equation is:

VALUE = ROE/COC x ROE/COC x EQUITY

or

V = (ROE/COC) ^ 2 x E

Snoopy commented
--------------------
"So now you are taking the 'real return' and putting it through the sausage machine that has generated your returns (the company) so that it spits out your subsequent real return on profits earned as a 'return on your return'."

I wanted to add something to my comment above. Isn't the equation for the reinvested profits as below?

VALUE = ROE x ROE/COC x EQUITY

I changed it because the reinvested profits are 'all real' and represent money that would otherwise have been pocketed by the investor. I can't see how it makes sense to divide that otherwise pocketed money by the cost of capital again. Once you have divided by the cost of capital the first time, that correctly discounts your initial capital profit against the yardstick of your cost of capital. But when the just generated profit which converts to new capital is reinvested the cost of that new capital (reinvested profits) is nil is it not? Because the reinvested capital concerned did not exist at all before it has cost the investor nothing. Or am I getting confused? Perhaps Sauce or Greg or others can sort me out!

SNOOPY

Snoopy

08-02-2011, 04:39 PM

Sauce

08-02-2011, 05:34 PM

I changed it because the reinvested profits are 'all real' and represent money that would otherwise have been pocketed by the investor. I can't see how it makes sense to divide that otherwise pocketed money by the cost of capital again. Once you have divided by the cost of capital the first time, that correctly discounts your initial capital profit against the yardstick of your cost of capital. But when the just generated profit which converts to new capital is reinvested the cost of that new capital (reinvested profits) is nil is it not? Because the reinvested capital concerned did not exist at all before it has cost the investor nothing. Or am I getting confused? Perhaps Sauce or Greg or others can sort me out!

SNOOPY

Thanks for your reply Snoopy!

My understanding is that the new capital is not exempt from the "time value" of money, i.e. opportunity/aternative use cost.

So when talking about a compounding annuity, all future cashflows become new capital, but still require discounting. Re-investment of profits is still using cash that could be used elsewhere, just like the initial investment. So it needs to be treated in the same way, with the same "cost". Surely that's fundamental to capital management?

Regards,

Sauce

Sauce

08-02-2011, 07:45 PM

Snoopy wrote
--------------

Not sure you really need to go to the trouble of working out the return on the return. I use an ROE target of 15% minimum for new companies that I invest in. If say the cost of capital was 7%, I might equally say my target was 8% above the cost of capital. But what is the difference between that and a gross ROE target of 15%? I would say nothing.

Sauce responded
------------
Well it allows you to put a value on compounding growth.

Snoopy counteresponded
------------------------

Using gross figures like my 15% still allows you to do the compounding growth calculation. The only thing you have to remember is that when looking at the result after a few years is that if you use a 'gross return figure', there is an underlying profit in there which you would have got anyway by just investing in government bonds, roughly akin to that cost of capital. But I fail to see how moving the zero return point up to say 7% allows you to put a value on compounding growth. If you didn't do that you can still measure compounding growth equally well.

SNOOPY

I am pretty sure I understand you....

Correct me if I am misunderstanding something obvious, but I believe the net return after the discount is the present value. So by discounting it to determine the 'present value' it allows you to compare with prevailing prices simply and easily helping you to determine if a margin of safety exists.

So yes you could value the compounding growth without the discount rate. But for purposes described above and since it is not hard, why not build in the required return/discount rate.

Again, I hope I am not displaying my ignorance here, but this seems intuitive to me.

Cheers

Sauce

mamos

08-02-2011, 10:13 PM

moimoi

09-02-2011, 10:15 PM

RBD has traded off from the highs pretty easily recently. ACC raising its stake in past 2 days hasn't provided any impetus either.

Am sure Mr P would indicate a confirmed downtrend now in place.

Any thoughts on why?

cheers
Moi.

Phaedrus

10-02-2011, 01:43 PM

Yes Moi, the downtrend and the SELL signals began over 2 months ago. Yet again, RBD shows the difference between FA and TA in stark contrast. While the fundamentalists are having earnest discussions on how best to assess the theoretical "worth" of this stock, the technicians are out of RBD and, more importantly, the market is selling it down. RBD has dropped over 30 cents since then.

IMO those selling out of RBD over the last month or so are either pure chartists, or insane.This could be re-phrased as "Those still holding RBD must be either diehard fundamentalists or insane".
We are all in this for the money. Which approach has proved to be the more profitable?
Given the long-running TA vs FA argument that has raged over RBD, it is easy to weigh up the relative merits of these 2 approaches. It is all documented right here for anyone that bothers to look.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD210.gif

h2so4

10-02-2011, 04:56 PM

Snoopy wrote
--------------

Not sure you really need to go to the trouble of working out the return on the return. I use an ROE target of 15% minimum for new companies that I invest in. If say the cost of capital was 7%, I might equally say my target was 8% above the cost of capital. But what is the difference between that and a gross ROE target of 15%? I would say nothing.

Sauce responded
------------
Well it allows you to put a value on compounding growth.

Snoopy counteresponded
------------------------

Using gross figures like my 15% still allows you to do the compounding growth calculation. The only thing you have to remember is that when looking at the result after a few years is that if you use a 'gross return figure', there is an underlying profit in there which you would have got anyway by just investing in government bonds, roughly akin to that cost of capital. But I fail to see how moving the zero return point up to say 7% allows you to put a value on compounding growth. If you didn't do that you can still measure compounding growth equally well.

SNOOPY

SD

On a $1000 1year bond paying 7% how much can I pay today for my bond to earn 15%? Answer $930.43(intrinsic value)

$1000 1year bond @ 7% = $1070.(compound growth calculation)

$1070 discounted at %15 today = $930.43 (discounted cashflow valuation)

The discounted cash that I can take out of my bond during its remaining life is $930.43 if I hope to earn 15%.

Snoopy

10-02-2011, 07:52 PM

Given the long-running TA vs FA argument that has raged over RBD, it is easy to weigh up the relative merits of these 2 approaches. It is all documented right here for anyone that bothers to look.

Phaedrus, no-one on this forum would doubt your charting acumen. However in the past you have claimed to be using both FA and TA to get a best of both worlds solution. You have demonstrated clearly why you have sold out of RBD on a technical basis. But on what fundamental basis did you sell out? Overblown forecast PE (of 9!)? Increasing company profits (A record this year and looking to get better over the world cup period)? Insiders selling out (No-one has)?

Can you name a single fundamental indicator that marks RBD as a sell? I can't.

The best reason I can come up with is the patchy performance of retail companies in general of late. But unlike what you might purport, all retail shares do not behave equally on a trending basis. RBD is forecasting strongly increasing profits, so it seems unreasonable to tar the company with a badly performing retail brush.

I rest my case that you are in fact a pure chartist. Nothing wrong with that of course if that is how you operate. But what is this line that you combine both FA and TA strategies? It strikes me as an inaccurate assessment of how you actually behave in this market. Anyway, I do congratulate you on sticking to your charting methods and coming out with a good profit at the end of the day. Nice work. I will be thinking of your cash earning 5% in the bank while my capital is earning close to double that as a shareholder of RBD.

SNOOPY

Snoopy

10-02-2011, 07:56 PM

Is my interpretation correct.

The first part values the current div per share as a perpetuity.

The second part values the retained earnings per share as a perpetuity but compounds this at the return of equity rate, discounted at req rate of return?

What's the explanation for ignoring future growth in dividends from the model?

Mathematical simplicity? Allowing increasing dividends woudl simply make the arithmetic too complex. Ignoring increasing dividends (if they occur) doesn't invalidate the use of the model, which is a relatively quick and easy method. But if actual dividends do increase it means the model will give you an extra margin of safety.

SNOOPY

Snoopy

10-02-2011, 08:02 PM

So when talking about a compounding annuity, all future cashflows become new capital, but still require discounting. Re-investment of profits is still using cash that could be used elsewhere, just like the initial investment. So it needs to be treated in the same way, with the same "cost". Surely that's fundamental to capital management?

Quite right Sauce. I think I was muddling what I wrote with something I read in the Mary Buffett books. In particular the idea of buying 'a share' as 'a bond' with a market coupon rate. But regarding the dividends received (interest in the bond analogy) as having an incremental coupon rate greater than your bond purchase price because of the internally generated compounding effect of shareholders equity reinvestment.

However you are quite right. All new investment, from whatever source, should be discounted back when calculating 'present value'.

SNOOPY

Snoopy

10-02-2011, 08:12 PM

Whats up SD, can't google this one?

I did think of asking you where you got the quote from SSD, before I guessed that I might be able to google it myself and find out. Your statement that Buffett doesn't use different discount factors for different companies was 100% correct. But any implication that he does in fact treat all companies exactly equally from an evaluation perspective (a dollar is a dollar) was not. That is why I saw the context as important.

Likewise I would not dispute that Warren is capable of doing his future cashflow projections and valuation fairly accurately. But that isn't the same as claiming that Warren does this on every investment he makes. I suspect Warren , given his experience, can do a near enough calculation in his head.

SNOOPY

h2so4

10-02-2011, 08:55 PM

I did think of asking you where you got the quote from SSD, before I guessed that I might be able to google it myself and find out. Your statement that Buffett doesn't use different discount factors for different companies was 100% correct. But any implication that he does in fact treat all companies exactly equally from an evaluation perspective (a dollar is a dollar) was not. That is why I saw the context as important.

Likewise I would not dispute that Warren is capable of doing his future cashflow projections and valuation fairly accurately. But that isn't the same as claiming that Warren does this on every investment he makes. I suspect Warren , given his experience, can do a near enough calculation in his head.

SNOOPY

Well I'm not here to prove anything. I just post here to offer anything that might be helpful, useful, or fun.:)

I know and you know you are right.

KIS while waiting for the fat pitches.:)

Phaedrus

11-02-2011, 12:39 PM

In the past you have claimed to be using both FA and TA to get a best of both worlds solution. You have demonstrated clearly why you have sold out of RBD on a technical basis. On what fundamental basis did you sell out? Can you name a single fundamental indicator that marks RBD as a sell? No Snoopy, I can't. Technically, though, the story is very different. Unmistakable multiple RBD Sell signals were triggered and these have proved their worth because RBD's shareprice has continued slipping since then. Like you, I consider RBD to be a good, sound stock, so I will be monitoring the current downtrend with a view to re-entering if/when this slide ends. Who knows how far it will run - the further the better as far as I am concerned!

I rest my case that you are in fact a pure chartist. But what is this line that you combine both FA and TA strategies? It strikes me as an inaccurate assessment of how you actually behave in this market. Snoopy, anyone trying to combine two very different approaches will inevitably have to deal with situations when the two methods disagree. When that happens, they must go with one or the other, or possibly try to find some sort of compromise. When that happens to me, I go with TA. Every time. I have found that doing so increases my profits because I am not "fighting the market". I use FA to help me decide what stocks to get into in the first place then time my entries with TA.

I will be thinking of your cash earning 5% in the bank while my capital is earning close to double that as a shareholder of RBD. What you have overlooked here Snoopy is the crucial fact that in just 3 months RBD's downtrend has wiped out an entire year's dividends more than TWICE OVER! To me it seems quite bizarre to focus solely on dividend gains when these are dwarfed by concomitant capital losses! This is exactly the mistake you and others made with TEL. Seduced by high dividend yields, you chose to totally ignore the unfortunate fact that your capital losses were bigger than your dividend gains.

This strange attitude found its fullest expression in this timeless quote from Major von Tempsky :-

"Frankly I don't personally care what the price is....... as long as it keeps paying its dividends".

winner69

11-02-2011, 12:43 PM

word of the day is concomitant ..... learn something new every day .... must use it ...thanks P

Snoopy

11-02-2011, 08:05 PM

What you have overlooked here Snoopy is the crucial fact that in just 3 months RBD's downtrend has wiped out an entire year's dividends more than TWICE OVER! To me it seems quite bizarre to focus solely on dividend gains when these are dwarfed by concomitant capital losses! This is exactly the mistake you and others made with TEL. Seduced by high dividend yields, you chose to totally ignore the unfortunate fact that your capital losses were bigger than your dividend gains.

Phaedrus I accept that if I claim to be using the same share picking method method then I cannot cherry pick my best NZX investment (RBD) while forgetting about my worst (TEL) and crow just about RBD. The question is even if you see my methods as sub optimal, have my winners more than made up for my losers? As you saw in the Snoopy vs the Index thread the answer over the last 5 years has certainly been yes.

If you look at the last three months and ask the same question then my three month loss on RBD has not been made up by a corresponding profit on Telecom shares. However, since my time horizon is rather greater than three months this fact is of little relevance to my long term strategy. If lessons are to be learned here, the best one is that where you have an industry heavily dependent on technology such as telecommuications, in Buffett terms "something that is difficult to understand", you might be best to stay out of it altogether. Now perhaps you would just interpret this as a hindsight FA perspective (not that reasons are needed when using TA) on why you would have best kept out of TEL. Perhaps you would be right. However, investing is not a 'rear vision mirror' exercise.

The question is should the deregulation of Telecom's market in New Zealand five years ago, dictate your policy on investing in the new Telecom today? I would say the answer to that question is no.

The concommitant capital losses of which you speak, while real, are not realised until the completion of any investment plan. Acting on market signals is always optional, and I would argue that many of these market losses are really market noise. I would argue this with the performance of RBD over the last three months. I would find it harder to argue the same case for TEL when considered over the much longer timefraame of the last five years.

SNOOPY

gregrday

11-02-2011, 09:04 PM

Hi guys, not to walk into a technique fight, I think Snoopy and I are on the same page. This is probably because I have little understanding of technical analysis. But I do see some value in a timing approach, particularly with respect to my options trading. I tend to trade options on weakness that I think is overdone.

I'm only learning, but have done reasonably well off the GFC, when it was blatantly obvious to even neophytes like me that stocks like RBD were undervalued. My current thesis is the same, the amount of money RBD are producing should justify a higher share price. But, in order that my trades are fairly transparent, I basically do what I forecast. eg: Bought RBD, Sold MHI, Sold XRO etc.

So for RBD, I bought at 2.59, which obviously sent the price downwards (its my special power). But... it hasnt altered my thesis, that RBD is undervalued. I don't care particularly about the daily ups and downs, because they havent altered the thesis. I've learned (to some degree) not to be greedy and chase every last penny. I will simply be happy if the thesis plays out and RBD heads to $3.40+. I havent seen anything that has disturbed that thesis, so will remain invested until I do.

Thats my approach at least.

cheers
Greg

blackcap

11-02-2011, 10:49 PM

love the word concomitant... have already used it in correspondence.. cheers P

h2so4

12-02-2011, 11:03 AM

Greg
Yes I haven't seen anything that has altered RBD's intrinsic value. Infact I toped up on recent sp weakness. You can chalk me down for that one P.

gregrday

12-02-2011, 05:01 PM

As an example of what might happen to change the thesis, RBD might decide that they're super-stars of fast food, and bring in another franchise, which will send me running screaming to the hills...
:-)
cheers
Greg

h2so4

13-02-2011, 11:39 AM

emearg

13-02-2011, 12:52 PM

Snoopy

13-02-2011, 02:25 PM

RBD is a cyclical stock that benefits from recessions where they can achieve exceedingly good margins on weak ingredient prices. If you truely think the market weakness isn't a result of the hardening of of ingredient prices (leading to lower margins) and consumers feeling a bit more confident and being sick of the taste of KFC and spending at other prices (leading to lower sales) you're deluding yourself.

re you "haven't seen anything that has altered RBD's intrinsic value". Neither did Bongo as we came out of the last recession. You can't see it just yet - you'll see it shortly though but the mrkts wiser than you think and guessed it before we'll see it. IMNSHO Mr mrkts got this one spot on.

You make a coherent argument Belg. Perhaps you will be proved right. But you should bear in mind ingredient costs tend to be fixed in medium term contracts by RBD management, and are not affected by the 'spot' market.. Threre is little evidence that consumers are feeling more confident. My own expectation is that a double dip recession and a very slow grinding recovery is the most likely outcome. And there is absolutely no evidence that the taste of KFC is becoming less popular. Quite the opposite in fact. Consumption is rising faster than inflation.

So while you and Phaedrus may yet be proved right, I can't see a single piece of evidence in the market, bar a falling RBD share price (which has turned the corner and is recovering again anyway). Short term the market is a voting machine and share prices will be buffetted. Medium term, I can't see such scaremongering scenarios as gaining any traction. At a PE of 9 the market is already pricing in your scenario of doom, so worst case the RBD share price stays still. IMO the only way to go is up from here.

SNOOPY

h2so4

14-02-2011, 09:32 AM

I guess Mr Market worries too much.

winner69

14-02-2011, 09:52 AM

My own expectation is that a double dip recession and a very slow grinding recovery is the most likely outcome.

You can have a punt on that at iPredict ..... currently about 50 cents to get $1 returnfor the December guarter GDP to be negative so a technical recession is reported (unless they revise Seot to a +ve number)

Odds were much longer a month or so ago .... about 10 cents for $1 return

You are right with your 'espectation' ... go on make a few bob out of it .... good fun

Stumpynuts

14-02-2011, 09:54 AM

Hi guys,

How about this for a bit of fun?
I tried the following recipe during the weekend - A so called near exact tasting recipe of KFC made by an American guy, who used to be a former finance worker

http://homecooking.about.com/od/chickenrecipes/r/blchicken46.htm

I was stunned, if you actually sit down and let the flavours linger in your mouth for a moment you could actually taste the KFC!
I pretty much ate a whole 15 piece pack to myself in the weekend LOL

Snoopy

14-02-2011, 10:43 AM

You can have a punt on that at iPredict ..... currently about 50 cents to get $1 returnfor the December guarter GDP to be negative so a technical recession is reported (unless they revise Seot to a +ve number). Odds were much longer a month or so ago .... about 10 cents for $1 return.

By having my largest shareholding in RBD, I am having a punt Winner. But with an RBD punt, you don't lose your stake money albeit with the downside of a reduced likely return (IMO around 20%).

SNOOPY

gregrday

14-02-2011, 11:17 AM

RBD is a cyclical stock that benefits from recessions where they can achieve exceedingly good margins on weak ingredient prices. If you truely think the market weakness isn't a result of the hardening of of ingredient prices (leading to lower margins) and consumers feeling a bit more confident and being sick of the taste of KFC and spending at other prices (leading to lower sales) you're deluding yourself.

re you "haven't seen anything that has altered RBD's intrinsic value". Neither did Bongo as we came out of the last recession. You can't see it just yet - you'll see it shortly though but the mrkts wiser than you think and guessed it before we'll see it. IMNSHO Mr mrkts got this one spot on.

Hi Belgarion

thanks for that. How do you find out about ingredient prices? As you point out, if these go up, KFC (aka RBD!) suffers. So any thoughts along how to find out those ingredient prices, and their potential movements would be great to know.

I guess my problem is... there is some market weakness, but I can't make a causal link with increasing (or potentially increasing) ingredient costs, because I don't know enough about where to get that data from. So any heads-up would be great.

I found:
http://www.stats.govt.nz/browse_for_stats/economic_indicators/cpi_inflation/slicing-and-dicing-meat-and-poultry-prices.aspx

which is pretty interesting, but I understand that RBD has long-term (4 years remaining) agreements with Ingham and Tegal. Im not sure of the details, but I assume that price will be reasonably fixed. Interested to hear any other data around this.

cheers
Greg

winner69

14-02-2011, 01:13 PM

Maybe Belg is thinking cheese, milk and coffee beans as a starter ... and then the cost of bread rolls and the stuff that makes the pizza dough .... even if chickens are off limit

Sauce

14-02-2011, 03:06 PM

Hi Belgarion

thanks for that. How do you find out about ingredient prices? As you point out, if these go up, KFC (aka RBD!) suffers. So any thoughts along how to find out those ingredient prices, and their potential movements would be great to know.

I guess my problem is... there is some market weakness, but I can't make a causal link with increasing (or potentially increasing) ingredient costs, because I don't know enough about where to get that data from. So any heads-up would be great.

I found:
http://www.stats.govt.nz/browse_for_stats/economic_indicators/cpi_inflation/slicing-and-dicing-meat-and-poultry-prices.aspx

which is pretty interesting, but I understand that RBD has long-term (4 years remaining) agreements with Ingham and Tegal. Im not sure of the details, but I assume that price will be reasonably fixed. Interested to hear any other data around this.

cheers
Greg

Hi Gregday,

Have you thought of trying the company itself?

I started doing this over the last year or so and now believe phoning executives is one of the best ways to quickly understand the business and confirm or rule out parts of your thinking. Even how willing they are to enlighten small shareholders is telling in itself.

Perhaps RBD might even be able to shed some light on ingredient prices and contracts ? ?

Cheers

Sauce

Stumpynuts

14-02-2011, 04:18 PM

Save yourself quite a lot of money by making KFC yourself

http://homecooking.about.com/od/chic...lchicken46.htm

h2so4

14-02-2011, 04:46 PM

Great I'll give it a go.

I think Greg and Belg want a copy of the costing.:)

Snoopy

02-03-2011, 12:25 AM

KFC, PH and Starbucks stores have all been closed in ChCh since the quake, on the west side of the city. Almost certainly they will be closed in the east too. This hasn't been reported to the NZX, but since the SP dropped to $2.40 today, I guess the market knows!

SNOOPY

winner69

02-03-2011, 08:25 PM

You may have strated some panic selling there Snoopy!!!!

WIth interest rates likely to take a dive for the rest of the year RBDs dividend looking even better I would have thought

gregrday

03-03-2011, 07:50 AM

Yes, odd the stock has continued to go down. Normally that would suggest I have been buying!
:-)
Still happy with my thesis, and as winner69 points out, the dividend yield will soon be even more attractive. Quarter 4 sales should be out relatively soon, and I'll revisit my valuation then...

cheers
Greg

gregrday

03-03-2011, 10:53 AM

True, but I still consider RBD undervalued, so will let it run. I also consider RBD to be stable (assuming management don't get a rush of blood to the head).

I want the NZD to drop like a stone to increase the NZD value of my US stock investments...
60c anyone ? [evil grin + maniacal laugh].

cheers
Greg

Toulouse - Luzern

05-03-2011, 09:11 PM

Noticed Starbucks on Lambton Quary by Lambton Square Wellington closed on 28 Feb 2011...
So has the Vodafone outlet a bit closer to Parliament ...

Snoopy

07-03-2011, 12:05 PM

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

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

SNOOPY

Snoopy

09-03-2011, 10:14 AM

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

SNOOPY

Phaedrus

09-03-2011, 11:44 AM

I guess a pure chartist might be out, but this is yet another example of why you might not want to be a pure chartist.Quite the contrary! This is yet another example of a pure chartist running rings around a pure fundamentalist!

IMO those selling out of RBD over the last month or so are either pure chartists, or insane.Alternatively, those NOT selling out of RBD (when all those sell signals fired) were either pure fundamentalists, or insane! Which course of action was the more profitable?

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

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

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD39.gif

moimoi

09-03-2011, 12:35 PM

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

gregrday

09-03-2011, 05:47 PM

Hi Phaedrus

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

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

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

cheers
Greg

Snoopy

09-03-2011, 11:38 PM

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

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

SNOOPY

Snoopy

10-03-2011, 10:50 AM

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

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

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

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

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

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

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

SNOOPY

Phaedrus

11-03-2011, 11:04 AM

I am curious as to how Westpac via BT Funds, has managed to accumulate RBD (a SSH notice of 5% was just filed) while the falling OBV indicator indicates that shares are being distributed (?). Whatever buying Westpac were doing was insufficient to halt or even slow the downtrend.
Overall, RBD continued to be distributed in spite of Westpac's accumulation.

Catalyst

07-04-2011, 10:37 AM

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

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

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

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

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

JayRiggs

07-04-2011, 04:18 PM

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

Phaedrus

07-04-2011, 04:45 PM

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RBD47-1.gif

h2so4

07-04-2011, 05:27 PM

Excellent result. Increasing margins, true profits, and turnover. Nice

Corporate

10-04-2011, 05:04 PM

RBD looks like a better options than money in the bank at the moment!

13-04-2011, 05:28 PM

h2so4

13-04-2011, 05:33 PM

20% dividend? Are you sure about that?

winner69

13-04-2011, 05:39 PM

20% dividend? Are you sure about that?

For KJ it is ... no doubt using his average cost

There are some who have free RBD shares as well sulphuric man .... wonder how they calculate their dividend yield

h2so4

13-04-2011, 05:44 PM

For KJ it is ... no doubt using his average cost

There are some who have free RBD shares as well sulphuric man .... wonder how they calculate their dividend yield

Money for jam

13-04-2011, 05:51 PM

Winner is correct-I have not calculated exactly but have an average purchase price of 91c-I was interested to hear opinions on what is likely to continue to drive profits-any thoughts?

h2so4

13-04-2011, 05:54 PM

Don't sell an uptrending stock. You must have read that one. How about sell once it reaches value or somewhere in between purchase price and value.

My thoughts are, it's still undervalued.

h2so4

13-04-2011, 06:04 PM

Cheez paying .91. I'd knock it off at $2.90. but in my mind RBD just keeps getting better so no reason to sell. I don't think we need increasing profits to see the share price continue to increase. I'd just look at it as the reports come out and base my decision on that.

13-04-2011, 09:37 PM

H2SO4-yes,of course I've heard about not selling in an uptrend.
Unlike you I believe that the market looks ahead in valuing a stock & in this regard next years profit
will have a big bearing.I note that the Directors feel that it will not be easy.
Sell when it reaches value-really-who determines this?The market decides what the value is.
I would certainly sell if it reaches $2.90 but can see little reason why the price will exceed the
previous high-hope I am wrong.

gregrday

14-04-2011, 08:43 AM

h2so4

14-04-2011, 10:57 AM

15-04-2011, 04:47 PM

The market decides what the price is. Price is what you pay value is what you get.

I would have thought that value is one person's estimate of what a share is worth based on a number of assumptions
which could be right or wrong.

15-04-2011, 04:49 PM

For KJ it is ... no doubt using his average cost

There are some who have free RBD shares as well sulphuric man .... wonder how they calculate their dividend yield

Just to clarify Winner I have no free shares-not sure how you get free shares.

15-04-2011, 05:01 PM

winner69

15-04-2011, 05:45 PM

Just to clarify Winner I have no free shares-not sure how you get free shares.

No not you KJ ... it was somebody else who said their RBD shares were free .... like selling some for a profit and using the profit figure to reduce his overall cost to get somewhere newar zero ... hey presto free shares ... if you get what I mean

Snoopy

23-04-2011, 11:35 AM

When to sell is often a hard decision I find & RBD is a prime example.A very high dividend yield (close to 20%) makes holding attractive but the stock has had such a good run in the last couple of years that you have to think that it will not last.What is likely to keep driving the price?
I find it hard to see profits continuing to climb.

Dividend yield is usually measured on market price. Looking historically last years payout was 17c (imputed). At a share price of $2.50 that gives a yield of 9.7% (assuming 30% tax rate). 9.7% very impressive when the bank quoted me 4% gross for a 6 month term deposit last week.

What will drive the RBD share price is the elimination of loss making outlets, achieved by either closing them or selling off to smaller family run operators to whom a corportae head office is just a drag on profits. Also the RWC should be good for pizza in general. And if RBD can sell off Starbucks as a going concern so much the better. After corporate head office costs are taken into account. Starbucks makes no money for RBD.

9.7% is well above the long term average NZX return. I would say by holding RBD with no profit growth forever into the future you should still outperform the NZX. From here I don't see anyone getting rich on RBD overnight, but I can't think of a single FA reason to sell now. Normal operating PE only around 10 with the share price of $2.50. RBD still looks ridiculously cheap compared to their retail listed peers.

SNOOPY

Corporate

23-04-2011, 05:40 PM

Snoopy do you think that investors believe the dividend rate isn't maintainable and therefore the current yield could be seen as high?

Snoopy

24-04-2011, 12:10 PM

Snoopy do you think that investors believe the dividend rate isn't maintainable and therefore the current yield could be seen as high?

I can't answer for the generic investor Corporate. However, the latest advisory to the stock exchange indicates that there are 97.8m RBD shares on issue. Operational profit was $25.1m for FY2011. So operational earnings per share were: $25.1m/$97.8m= 25.7cps. Since the dividend payout was only 17cps, earnings would have to decline by some 30% before that 17cps level of dividend payment became unsustainable. You have to ask yourself what is the chance of that?

RBD are using their retained earnings to pay down debt while times are good. I think this is a sound strategy and that we will see annual dividends of at least 17cps into the forseeable future.

SNOOPY

discl: hold RBD

winner69

10-05-2011, 01:48 PM

The Double Down thing should do wonders for the share price

I thought people only camped outside stores for Apple things .....not for a bun ess burger

Any gues as to the sales increase this will create

winner69

10-05-2011, 01:51 PM

buns

10-05-2011, 07:32 PM

I left work early to get one as the thought of it was distracting me all day.

Turned up to a huge mob of people all pretty angry as they had run out of double downs (Kent tce wgtn).

Word is, they will be back tomorrow.

Sauce

10-05-2011, 09:04 PM

Classic Buns!

I drove past Kent Tce KFC early this morning and there was a long cue outside and tv cameras! I cant imagine anything worse to eat at 9 in the morning.

Lol, KFC must be loving this, what a bizarrely un-PC and differentiated marketing strategy in this day and age of McDs wraps and salads etc

I love it. Talk about embracing your faults and running with them... !

fungus pudding

10-05-2011, 09:10 PM

up 5 cents today ... whats the next invention? A doughless pizza?

Yep - without the toppings. :t_up:

Te Whetu

12-05-2011, 01:10 AM

Hi KJ

i previously posted an analysis of RBD, I haven't had time to update it with the latest figures, will post here when I do. The previous analysis is here:
http://gregnz.wordpress.com/2010/12/19/restaurant-brands-part-2/

Essentially it sees little to no growth, a reduction in capital expenditure and an ongoing free-cash-flow of around $21 million, which gives me a stock price of $3.59.
I also think that this is a relatively conservative estimate, with no factoring of improved sales due to the KFC refurbishment program.

something to think about!

cheers
Greg

NOTE:
None of this has much to do with the actual value of RBD, so much its valuation as provided by Greg. Read only if you're interested in commentary on valuations.

NOMINAL WACC OF 7.7%:
This seems too low, would be happy to be directed to the KPMG document which says otherwise but a search on Google for “WACC KPMG 7.7%” resulted in two items by you and no KPMG source...

I had more comments around WACC but removed them. Quick question I’ve got due to your comment around the “safety margin”. Would you buy a stock with zero "safety margin"? If not then I strongly suspect it's not worth what you claim it is and you need a higher WACC.

ERRORS IN VALUATION AND GENERAL COMMENTARY:
As for your valuation I’ve a few points below. Note that for the below I’ve assumed that the WACC is correct.

1. EBITDA in the KFC financials is before G&A. Therefore you are going to need to adjust for this if you want to use EBITDA for anything meaningful. I note that you used EBIT so this should not impact your valuation, just something to be careful of.

2. You have included the non-trading line in your EBIT figure. Within non-trading is a portion associated with refurbishment, including this should be ok if you think RBD might keep having items like this pop up regularly. However of the non-trading item, $396k is an impairment (i.e. non-cash). You should adjust for this. I recommend reading the notes to accounts when valuing a business, in this case it is having a $7.0 million impact on your valuation.

3. Took me a little while to figure what you were doing with the reinvestment + reinvestment rate, finally got it. Not the way I would do things but whatever; I wonder if you understand what you are implying with this, you're basically saying RBD will spend circa $21 million on capex, changes in working capital and tax each year into perpetuity (growing at inflation). I like basing a valuation on FCFF or FCFE but you need to understand all the items you’re putting into it and what it means. If you assume unleavered tax of circa $9.6 million (based on 33% tax rate back in FY2010 and EBIT of $29.2 million) then this would mean capital expenditure of circa $12 million per annum. Not saying this is right or wrong, just suspect this has not been thought through as the 30% has been labelled reinvestment rate but largely needs to cover tax. Possible this is the tax and it's just an incorrect label.

4. Your historical figures for FCFF are wrong. Not sure how you calculated them, but either way wrong. For FY2010 assuming 33% marginal tax rate on interest FCFF seems to be around $25.6 million. I've calculated this from the statement of cash flows. You could argue a small difference based on what to include in FCFF... but even so, your figure of circa $16 million is WAY off.

5. You mention that you capitalised the operating lease. There are often good arguments for this, however I see while you did capitalise it you did not let this change your valuation (which is fine as many would not bother making the adjustment in the first place). If you ever do wish to remove the operating lease for the purpose of your valuation you will need to do more than just capitalise the future payments and add them to debt, you will also need to: 1) add the same amount to assets, 2) remove lease payments from operating expenditure, 3) apportion some of the operating expenditure to interest, 4) apportion some of the operating expenditure to repayments of the debt, and 5) depreciate the asset you created.

6. Looks like you have an error in the capital structure box up the top. This is not flowing through to the valuation.

Hope this helps, also I’m not promising I’ll go over future valuations.

Cheers
Te Whetu

EDIT: Note my commentary was originally a lot harsher, tried to soften it up a bit when read "Part-time stock analyst" and "so simple I probably got it all wrong" around your MHI valuation on your blog. Originally thought you were holding yourself out to be an expert in valuation.

gregrday

15-05-2011, 12:59 PM

Hi Te Whetu

Thanks for your comments, and time looking at the valuation, suspect you might be the first person to do so!
So thanks for the effort. Apologies if I come across as an 'expert', I thought I had made it pretty clear that I'm a guy interested in valuations, rather than an expert. I'm really trying this stuff out to have a straw man up for others to critique, and hopefully learn from. But apologies if that was not clear.

NOMINAL WACC OF 7.7%:
This seems too low, would be happy to be directed to the KPMG document which says otherwise but a search on Google for “WACC KPMG 7.7%” resulted in two items by you and no KPMG source...

Ah yes... hmm. Mea culpa here. KPMG... I actually meant PWC. The reference is: http://www.pwc.com/en_NZ/nz/cost-of-capital/cost-of-capital-december-2010.pdf

I had more comments around WACC but removed them. Quick question I’ve got due to your comment around the “safety margin”. Would you buy a stock with zero "safety margin"? If not then I strongly suspect it's not worth what you claim it is and you need a higher WACC.

No, I wouldn't buy a stock with zero safety margin, but I wouldnt use the WACC to encapsulate a safety margin for a specific company either. I'm not an expert, but I'd rather use the difference in the resulting prices to indicate a safety margin.

1. EBITDA in the KFC financials is before G&A. Therefore you are going to need to adjust for this if you want to use EBITDA for anything meaningful. I note that you used EBIT so this should not impact your valuation, just something to be careful of.

Thanks, will make a note.

2. You have included the non-trading line in your EBIT figure. Within non-trading is a portion associated with refurbishment, including this should be ok if you think RBD might keep having items like this pop up regularly. However of the non-trading item, $396k is an impairment (i.e. non-cash). You should adjust for this. I recommend reading the notes to accounts when valuing a business, in this case it is having a $7.0 million impact on your valuation.

Excellent point, thanks! I did forget about the non-trading items, so thanks for the heads-up.

3. Took me a little while to figure what you were doing with the reinvestment + reinvestment rate, finally got it. Not the way I would do things but whatever; I wonder if you understand what you are implying with this, you're basically saying RBD will spend circa $21 million on capex, changes in working capital and tax each year into perpetuity (growing at inflation). I like basing a valuation on FCFF or FCFE but you need to understand all the items you’re putting into it and what it means. If you assume unleavered tax of circa $9.6 million (based on 33% tax rate back in FY2010 and EBIT of $29.2 million) then this would mean capital expenditure of circa $12 million per annum. Not saying this is right or wrong, just suspect this has not been thought through as the 30% has been labelled reinvestment rate but largely needs to cover tax. Possible this is the tax and it's just an incorrect label.

I think I made a mistake here which I think is what you're pointing out. The reinvestment rate was calculated as the terminal growth/av ROC with a bit of adjustment (which might be a bit dangerous given RBDs history). However, the terminal free cash flow to equity figure was based on EBIT, not EBIT(1-t) which it should have been.

I think this is what you were pointing out? Obviously going tax-free makes RBD a lot more valuable! So that brings the terminal value down to around $286 million, which brings the share price target to around <b>$2.90</b>...

4. Your historical figures for FCFF are wrong. Not sure how you calculated them, but either way wrong. For FY2010 assuming 33% marginal tax rate on interest FCFF seems to be around $25.6 million. I've calculated this from the statement of cash flows. You could argue a small difference based on what to include in FCFF... but even so, your figure of circa $16 million is WAY off.

I calculated FCFF as follows (as per Damodarans example):
2010 ebit *(1-taxrate of 30%)+
2010 depn-
2010 cap exp +
2010 change in working capital

Did I screw something up here? I thought I had looked at it pretty closely, but that doesn't guarantee success! Happy to correct, although just looking at it now, it looks about right? - which almost certainly indicates it is wrong… ;-)

5. You mention that you capitalised the operating lease. There are often good arguments for this, however I see while you did capitalise it you did not let this change your valuation (which is fine as many would not bother making the adjustment in the first place). If you ever do wish to remove the operating lease for the purpose of your valuation you will need to do more than just capitalise the future payments and add them to debt, you will also need to: 1) add the same amount to assets, 2) remove lease payments from operating expenditure, 3) apportion some of the operating expenditure to interest, 4) apportion some of the operating expenditure to repayments of the debt, and 5) depreciate the asset you created.

Good points. I was playing with this, first time, and obviously didn't do it properly. Thanks for the clarification, and the education. Which after all was the point of putting up the analysis in the first place!

6. Looks like you have an error in the capital structure box up the top. This is not flowing through to the valuation.

I'll have a look at the underlying spreadsheet and see whats going on.

Hope this helps, also I’m not promising I’ll go over future valuations.

What? Why not? ;-) It would be great if you could comment on the valuations when they come out. I'm super busy at the moment, but I put them up to learn from and maybe help others as well.

EDIT: Note my commentary was originally a lot harsher, tried to soften it up a bit when read "Part-time stock analyst" and "so simple I probably got it all wrong" around your MHI valuation on your blog. Originally thought you were holding yourself out to be an expert in valuation.
[/QUOTE]
Yes, apologies if I came across as an 'expert' (whatever that means in valuation terms!). I think previously I have mentioned that I'm a beginner in valuations, but thought my attempts might reach a 'correct' valuation through crowd-sourcing. And each note like this makes me a little bit better, so after a few years of such feedback, I might be ok!

Thanks again for your comments.

cheers
Greg
ps. will update the valuation when a) 2010 report is out and b) I have some time!

Te Whetu

15-05-2011, 06:36 PM

Hi Greg

Yep, it's been a long time since I've followed this forum, your post was one of the first I read. Anyway about WACC:

The reason I asked if you would buy a stock with zero safety margin was to gage how you were approaching the WACC. There are two common ways of looking at WACC and neither is wrong for the purpose of deciding whether to invest or not, (as long as you understand the process you are going through).

Option One: Include within the WACC any margin which would be needed to purchase the asset, this will allow for items such as risk of the cash flows. As such if the value is at all greater than the price then you would buy. Assuming limited funds then you would pick the greater NPV.

Option Two: Use a lower WACC but know that the value you arrive at does not equal your entry price (you need a safety margin). This is an approach which I feel you are using.

There is nothing wrong with the second option when deciding on investment decisions; however care needs to be taken when saying that you have arrived at a company value of “x”. For most people reading that they would see it as “the intrinsic value is x”, which if you need a safety margin may not be correct. Not an issue for your own investing but something to be careful of when sharing your valuation with others. This is also the reason valuers would tend towards the first method.

As for the PWC WACC, I don’t like it (in particular the equity beta). I suspect they have done a regression analysis of RBD to find the beta. The problem with this is where RBD has come from and where they are going... over the last several years they have had very good performance after putting behind them several years of very bad performance. Thus they have not really followed the market (and to be honest small companies rarely follow the market).

However that time of being relatively indifferent to the market is over and I suspect they will be closer to other similar companies’ performance going forward (unless they enter another venture which destroys shareholder, i.e. Aus). I’ll quote their recent investor presentation:

“Despite a solid year, the company remains cautious about its 2012 outcomes. Economic uncertainty remains (GFC “hangover”). Impact of GST change is still working through to consumer spending habits. Impact of petrol price increases is impacting discretionary spend. Some price pressures building on input costs. The 2H of FY2011 saw a tapering of sales growth, especially KFC – this will continue into 1H2012.”

This is not a company which wants a long slow recovery from the GFC, they did ok during the recession, but that’s mainly because they were coming off a low base. I think a more appropriate equity beta is circa 0.9, I’ve come to that figure by comparisons with other internationally listed fast food companies (adjusted for leaverage). Now the companies I looked at were all larger but while that should impact the WACC it should not be too bad for the beta unless the companies are so large they tend to shift the market.

On the other point, I may make comments now and then, but honestly don’t have enough time to respond to every post around valuation... I tend towards longer posts which means responding too much could cost a lot of my time. Plus I’ve no inclination spend all my free time doing something for free when I get paid to do very similar stuff. I do enjoy this, so I will post, but I’m not going to be able to post as much as some of the forum's heros', (you all know who you are).

Oh and as for your FCFF formula, it seems fine (though working capital could be + or -). I was calculating it from the cash flow (which has a slightly different formula), but two estimates should be close. I'll have to look at it some other time as need to head off to dinner.

:)

Cheers
Te Whetu

Blendy

18-05-2011, 09:57 AM

From the NZHerald this morning, re Double Down madness:

"A KFC spokeswoman said sales were five times higher than they had expected."

"The limited edition burger, which sold 16,000 in its first three hours, increased staff members' workload 10-fold, a KFC cook said."

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10726314 (http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10726314)

Snoopy

30-05-2011, 10:19 PM

So while you and Phaedrus may yet be proved right, I can't see a single piece of evidence in the market, bar a falling RBD share price (which has turned the corner and is recovering again anyway). Short term the market is a voting machine and share prices will be buffetted. Medium term, I can't see such scaremongering scenarios as gaining any traction. At a PE of 9 the market is already pricing in your scenario of doom, so worst case the RBD share price stays still. IMO the only way to go is up from here.

There was a stock exchange enquiry asking why the share price suddenly dived from the mid $2.70s to around $2.30. The company replied they had no inside information to explain the fall. Previously released profit guidance was reaffirmed. Traders nevertheless saw the whole share price fall as a portent of doom and got out. Snoopy did not sell because there wasn't a shred of fundamental news to support any share price fall at all.

Now just 3 months later the share price has returned to near all time highs. There was no hidden doom. That last RBD share price fall, with hindsight can only be explained as 'trading noise'. Those traders who acted have now been revealed as trading on nothing at all but entirely unsupported sentiment. Here is an example of T/A not being a helpful investing tool, but only a mechanism for incurring unnecessary costs. For those who think they can just ignore fundamentals and use pure T/A techniques it is all a sobering lesson.

The 'weighing machine' trumps the 'voting machine' again, and this time relatively quickly!

SNOOPY

Te Whetu

31-05-2011, 12:22 AM

It did offer a massive buying opportunity... I've been waiting for my margin account to clear to increase my holding even further but it got approved a little too late. I've given up hope of it falling back again, especially with next quarters sales announcement coming up, which due to the one off gain of the double down will likely be bumper. So might as well post the following:

I really like RBD right now, and luckily was able to more than double my holding during the price weakness.

The reason I really like RBD are for the standard reasons the FA's on this forum harp on about: strong dividend, low debt, full imputations etc... it's a solid company at a very good price.

However the main reason I have increased my holding recently was the comment by management that they would slow their capex spend this year, (10 KFC renovations last financial year vs. 5-6 smaller KFC renovations this year). I estimate they will spend <$15 million capex this year which leaves more than $10 million in additional funds available for either reinvestment or distribution. If they distribute this then it would be another 10 cents distributed per share, taking the dividend payout from 15 cents to 25 cents.

In all likelihood management wont distribute it all, they will look for additional opportunities, pay down debt, and hopefully distribute at least enough to fully use its imputation credits. I'm estimating they will put the dividend up to 20 cents over this year and then possibly a further increase it next year.

There are c.34 stores left for renovation, with a schedule of 5-6 per year all stores will be renovated by FY2017, a total transformation time of around 11 years. This seems reasonable and after this time renovations would likely start again, but that's ok as the re-upgrades would not need to be as drastic. Currently KFC store renovations cost between $1.2 to $2.0 million, so I feel c.$15 million capex is quite reasonable even after allowing for the other franchises etc.

I'd expect the share price will go up if RBD announce a dividend of 20+ cents, as I don't believe this is being fully allowed for by the market.

Assuming I am correct the FCFE this year would be c.$25 even without taking into effect one-off gains from the Double Down and RWC (minor impact?).

Cheers

Te Whetu*

DISC: Over c.55% of my investments are RBD... I'm not investing further at $2.74 news comes out that changes my opinion. But also not selling below $3.10 without news to change my opinion. Even at $3.10 I would not exit I would only reduce to rebalance.

* is hoping for another drop in share price... but not expecting it as the trendies have likely already sold out :p

EDIT: Sales update just out, KFC sales were only $1,000 off what I'd been forecasting... feeling fairly good about that. Pizza Hut $1.6 million below my expectations. Have never got around to forecasting Starbucks, but looks like an ok result.

Phaedrus

31-05-2011, 01:15 PM

The share price suddenly dived from the mid $2.70s to around $2.30. (There was) no information to explain the fall. Traders nevertheless... got out. Snoopy did not sell because there wasn't a shred of fundamental news to support any share price fall at all. Here is an example of TA not being a helpful investing tool, but only a mechanism for incurring unnecessary costs. Snoopy!!! Behave!!! The facts here prove the exact opposite! Unnessary costs? Selling at around $2.70 and buying back in again at around $2.34 gave a handy profit resulting in more RBD shares held for no extra outlay. Far from "incurring unnessary costs" TA proved to be a very helpful investing tool - the exact opposite of your assertion! Other than TEL, you could hardly have picked a worse share with which to try and demonstrate the superiority of FA over TA. Profits derived from a technical approach to RBD eclipse those made by any fundamental approach.

For those who think they can just ignore fundamentals and use pure TA techniques it is all a sobering lesson. Huh? Quite the contrary! For those who think they can just ignore prevailing market sentiment and use pure FA techniques to time their entries and exits it is (or ought to be!) a salutory lesson. Snoopy, after 12 years of "investing" in RBD on the basis of its fundamentals, you had made a capital loss. You were buying RBD on its fundamentals while it was in a painfully obvious downtrend. I was very consistent in my disapproval of your averaging down as you "topped up" your RBD holdings at $1.60, $1.30, $1.24 etc etc all the way down. Every so often I would kindly post a chart and gently point out to you that RBD was still in a downtrend. Those buying when the long downtrend did finally reverse made more in a few months than your fundamental approach had made in 12 years! Yet you claim this is a "salutary lesson" for TA users!

Snoopy, you are incorrigible.

Snoopy

03-06-2011, 03:12 PM

Snoopy!!! Behave!!! The facts here prove the exact opposite! Unnessary costs? Selling at around $2.70 and buying back in again at around $2.34 gave a handy profit resulting in more RBD shares held for no extra outlay. Far from "incurring unnessary costs" TA proved to be a very helpful investing tool - the exact opposite of your assertion!

The point Phaedrus is not that you made a profit (although I admire your purist zeal in sticking to your philosophy). The point is that you ignored all fundamental data which gave no indication of anything being wrong at RBD, and traded anyway. Any pretense that you are combining FA and TA in some kind of guruish combined system disappeared at that point. You have demonstrated that you are in fact a pure trader, or as pure as it is possible to get in the real world. Not that there is anything wrong with that "per se" if that is the philosophy you follow.

I know what your response will be to this:

You stuck to your system, did the trade, made a profit and nothing much else is relevant.

The problem with this answer Phaedrus, is that despite the stock exchange enquiring as to what might be causing the share price fall, the answer was nothing as is evidenced by the way the share price bounced back. Your trading system had you trading on pure sentiment which IMO one of the most risky thing anyone involved in the share market could ever do. The fact that you came out OK is no more laudatory that the proverbial hedgehog crossing the road and not ending up as a pancake declaring himself an expert "guide hedgehog" for the blind.

SNOOPY

Snoopy

03-06-2011, 03:15 PM

For those who think they can just ignore prevailing market sentiment and use pure FA techniques to time their entries and exits it is (or ought to be!) a salutory lesson. Snoopy, after 12 years of "investing" in RBD on the basis of its fundamentals, you had made a capital loss. You were buying RBD on its fundamentals while it was in a painfully obvious downtrend. I was very consistent in my disapproval of your averaging down as you "topped up" your RBD holdings at $1.60, $1.30, $1.24 etc etc all the way down. Every so often I would kindly post a chart and gently point out to you that RBD was still in a downtrend. Those buying when the long downtrend did finally reverse made more in a few months than your fundamental approach had made in 12 years!

But my investment time horizon wasn't 12 years Phaedrus. Roll forward another two years and I was showing a handsome profit way ahead of the market despite 12 years of mediocre performance up to that point. That shows the robustness of the value investment technique.

SNOOPY

Snoopy

03-06-2011, 03:49 PM

DISC: Over c.55% of my investments are RBD... I'm not investing further at $2.74 news comes out that changes my opinion. But also not selling below $3.10 without news to change my opinion. Even at $3.10 I would not exit I would only reduce to rebalance.

Starman, you are an even bigger RBD fan than I am! And that takes some doing. So perhaps it is time to unsettle you a bit?

Prior to FY2007, RBD were conscientiously writing off $2.2m in Pizza Hut goodwill per year in accordance with the accounting standards of the time. This was goodwill on the books as a result of the Eagle Boys pizza chain purchase some years earlier. However, under the new IFRS standards, this writing off of goodwill ceased. Goodwill it was deemed should only be written off if the deterioration in future profitability justifies it, not 'as of right'. RBD then stopped writing off Pizza Hut NZ goodwill as any responsible company would under the new accounting standards. So far so good, however...

In FY2007 RBD made a 'one off' PH NZ Goodwill write off of $1.142m.
In FY2008 RBD made a 'one off' PH NZ Goodwill write off of $1.187m.
In FY2009 RBD made a 'one off' PH NZ Goodwill write off of $3.968m.

No further write down in FY2010.

But in FY2011 PH made a 'one off' write off of goodwill of $1m in relation to certain Pizza Hut outlets that they had sold off to owner operators. IOW those outlets sold were on aggregate overvalued on the RBD books. However, management claim that the remaining PH stores are not affected and the PH goodwill that remains on the books is justifed. Do you believe RBD management this time? Call me a cynic, but I don't. IMO RBD PH goodwill is still very much overvalued on the RBD books.

The $7.297m of PH goodwill that has been written off from FY2007 to date is within striking distance of the $11.0m that they would have written off should the old accounting rules still apply. If the PH goodwill was honestly written down to its true value I think that an $11m cumulative write off since FY2007 would be close.

I submit that RBD have been overstating their gross profits by $2.2m, (or $1.5m after tax) every year since FY2007, as a result of the poorly judged treatment of PH NZ goodwill on their books.

SNOOPY

Snoopy

03-06-2011, 04:09 PM

S
I submit that RBD have been overstating their gross profits by $2.2m, (or $1.5m after tax) every year since FY2007, as a result of the poorly judged treatment of PH NZ goodwill on their books..

I am not yet finished with the RBD accounts department. Usually RBD highlight their trading performance net of non-trading items. This is fair enough and something I do myself when analyzing a company. The divisional non-trading items consist of such things as "dead rent" commitments as a result of moving out of abandoned stores, and store relocation/refurbishment bills. However, since FY2007 these 'one off costs' aggregated net across the three divisions have been as follows:

FY2007: -$0.975m
FY2008: -$0.993m
FY2009: -$1.176m
FY2010: -$0.162m
FY2011: -$1.149m

That amounts to $4.5m, or nearly $1m per year on average. It appears to me that far from being one off non trading losses, these losses are actually intrinsic to the way RBD does business. IOW we can expect similar losses every year into the future as far as any investor can reasonably foresee. Thus I assert that RBD are quite unwarrantably overstating their trading performance result by $1m per year ($700,000 after tax) by shoving expenses that in reality are intrinsic to trading off to a separate account.

Total over statement of RBD trading profit every year since FY2007 as a result of the above and insufficient goodwill write off discussed previously:

$0.7m + $1.5m = $2.2m after tax.

Something to keep in mind when assessing the performance of RBD!

SNOOPY

PS I should add that none of this makes me want to sell down my own RBD holding. But IMO they are only 'good value' on the market today, not the 'great value' that some others think they are.

Phaedrus

04-06-2011, 03:49 PM

The point is that you ignored all fundamental data which gave no indication of anything being wrong at RBD, and sold anyway. Any pretense that you are combining FA and TA in some kind of guruish combined system disappeared at that point. You have demonstrated that you are in fact a pure trader.Snoopy, I have explained many times how I select the company on fundamentals but base all entries and exits solely on TA. Nothing particularly "guruish" there - and certainly no pretence.

Your trading system had you trading on pure sentiment which IMO one of the most risky thing anyone involved in the share market could ever do. I disagree. Snoopy, you are not seeing this, but by holding on in the face of obvious negative market sentiment, your purely fundamental system was in fact exposing you to increased risk. When an uptrend ends, the prudent thing is to exit the stock.

The fact that you came out OK is no more laudatory that the proverbial hedgehog crossing the road and not ending up as a pancake declaring himself an expert "guide hedgehog" for the blind.Came out OK? Snoopy, I came out well ahead. More importantly though, I was the one with an insurance policy. If RBD had continued down even further, I wasn't going with it - you were.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/SCT64.gif

The price of ignoring market sentiment can be very, very high. Take a look at this example of the risk that you run by not selling when a stock shows clear technical weakness. Snoopy and I both held SCT (probably for similar reasons) and it was in a very strong uptrend. We tripled our money over 3 years - but then the uptrend ended. (They they all do, sooner or later). I sold. Snoopy didn't. Over the next 4 years, Snoopy gave all this profit (and more) back to the market as he doggedly followed his F/A strategy of buying "value" and accumulating on weakness. Even now, 7 years later, SCT is still less than half the price it was when the uptrend ended.

Just as TA users can increase their profits by utilising even simple fundamental analysis, so can fundamentalists increase their profits by utilising simple TA.

Snoopy

08-06-2011, 01:07 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.

Here is my 2011 update of the RBD divisional operational chart.

You should note that by my calculations (with the extra amortization of $2.2m thrown in) Pizza Hut lost $4m last year after all expenses were apportioned between the various divisions. That is an improvement from over the $6m aftwer tax loss in FY2010, but still horrific.

It is almost irrelevent to the overall picture but Starbucks I reckon produced its first profit for RBD since 2005, even if it was only $120,000 on nearly $30m in sales, a margin of 0.4%. Compare that to a margin of over 10% for KFC and you can see why this flagship brand is attracting most management attention.

SNOOPY

Snoopy

08-06-2011, 01:18 PM

I disagree. Snoopy, you are not seeing this, but by holding on in the face of obvious negative market sentiment, your purely fundamental system was in fact exposing you to increased risk. When an uptrend ends, the prudent thing is to exit the stock.

I was being exposed to volatility that I was prepared to ride out. That is not the same as being exposed to more risk (by my definition of risk).

Came out OK? Snoopy, I came out well ahead. More importantly though, I was the one with an insurance policy. If RBD had continued down even further, I wasn't going with it - you were.

My insurance policy was my background research on the company, a kind of insurance policy that you apparently give no weight to! That was sufficent to know that although RBD might fall with market volatility, it wouldn't fall very far. I backed myself as being smarter than the market over my investment time horizon and in this case I have been proved correct (so far).

SNOOPY

buns

08-06-2011, 01:20 PM

Does RBD not manage these units under one company/structure?

How do you attribute items below EBITDA to business units?

Snoopy

09-06-2011, 04:45 PM

Does RBD not manage these units under one company/structure?

Yes

How do you attribute items below EBITDA to business units?

I use the information under note 3 in the accounts 'Segmental Reporting'. That gives you the segment results (concept EBIT). I then turn to the statement of comprehensive income (page 26 AR2011). That gives me:

1/ The General and Administration Expenses (the head office costs not included in each 'concept' EBIT) -and-
2/ The Net Financing Expenses.

I apportion those costs across the three divisions in proportion to divisional revenue. That I think is reasonable for the Net Finance Expenses. However I tweak my formula a bit for General and Administration because I think that KFC and PH probably are taking a bit more office time per dollar generated than Starbucks. In fact my apportionment of General and Admin Expenses is based on the number of outlets. At this point I have divisional earnings before tax.

I then take off tax at a rate of 30% for each business unit as though they were a separate company (if the business unit make a loss they pay no income tax) and I have an after tax result for all three arms of the business.

SNOOPY

winner69

10-06-2011, 12:10 PM

Interesting they did a presentation in New York

Snoopy

10-06-2011, 05:24 PM

Interesting they did a presentation in New York

Those of us with long memories will remember the Douglas's from the USA who at one stage owned 5% of the company. Perhaps RBD management want them back on the share register?

There was certainly some interesting information, not released to the market before, that came out of the presentation.

Assets: KFC $NZ72m, Pizza Hut $NZ27m, Starbucks $NZ7m

Market potential for KFC now seen as 140 stores (!). Existing store transformation rate planned to be 5-8 per year. Brand new sites 1-2 per year. Looking to sell smaller stores to independent franchisees. Looking at going into shopping malls. (only example I know of is the Riccarton Mall in Christchurch, are there others?)

9.9 sales of Double Down 'burger' for every 100 people in NZ achieved within two weeks of the product going on sale. Compares well with 3.2 sales for every 100 people when the same product was rolled out in the USA in a five week promotion.

PH NZ target structure: 40 RBD owned, 45 operated by Independent Franchisors
Current Structure: 82 RBD owned, 5 Independent Franchisors
Plans for PH facilities upgrades and some centralized ingredients processing

Starbucks: Planning 3-4 store upgrades per year ($50k-$150k each). Planning to build 2-3 new stores per year whiel closing poorly performing stores at lease end.

SNOOPY

darksentinel

24-06-2011, 10:37 AM

http://www.stuff.co.nz/business/industries/5186052/Taco-Bell-test-outlet-possible-for-Auckland

I think quite a few people have been anticipating something along these lines.

Personally, I really like Mexican food, but from all accounts Taco Bell isn't very good.

Snoopy

24-06-2011, 05:05 PM

The chairman's and CEO's addresses are on the net for all to read. So this is a report on the vibe I got from attending the meeting, rather than a lot of new facts.

I feel things are moving a lot faster with Taco Bell than the printed speeches would let you know. A fourth restaurant arm has been on the horizon for years and Taco Bell was always been a possible option. But it was somewhat of a shock to learn that Chairman Ted van Arkel and CEO Russel Creedy had been over to the USA and Canada checking and costing out Taco Bell businesses on the ground, even though no ultimate decision on adopting the concept in NZ has been made. And it was even more of a shock to hear Ted van Arkel on National radio this morning saying he would like to have an evaluation Taco Bell site up and running in Auckland by the end of the year.

At the end of the official speeches, there were three ‘mailed in’ questions answered by Chairman Ted. The first related to the performance (or is that non-performance) of Pizza Hut. A shareholder asked: How did the recent performance of PH compared to Dominos in the NZ market over the same period? Chairman Ted said that results for Dominos were not publicly disclosed to a level that would allow direct comparison with PH. I am sure that is true. Nevertheless I think something useful from those DMP results posted in Australia could be estimated.

The second question related to KFC in Australia and whether RBD would be interested in going back to Oz, but this time with their most successful brand. Chairman Ted said that while their most recent foray into Australia with PH in Victoria was not successful, they do recognize that KFC is a different deal. There are no firm plans but ‘never say never’.

The third question related to Yum’s Chinese Market brand, ‘East Dawning’, created because Chinese people have a liking for Chinese food (!). Could that have a future in NZ? Chairman Ted said that management had examined a Chinese food concept, more along the lines of Dumplings. However the conclusion was that the economics of this kind of business are more suited to the lower overheads of Mom and Pop owners. And just because a concept works in China does not mean that it will translate well to New Zealand. I interpreted that as a ‘no’.

During Oral question time, an initially skeptical David Pilkington reported going for breakfast at KFC in the U.K. Despite his skepticism, he reported a good experience with a special egg rich ‘breakfast menu’. So the KFC breakfast idea will get a trial in New Zealand. If nothing else that will settle once and for all the “Which came first, the chicken or the egg” question.

From CEO Creedy we learned the head of Starbucks has gone. There was an impression of urgency given about bringing back a greater presence for Starbucks in Christchurch, following the loss of three stores cordoned within the central city earthquake ‘red zone’. At the time I had visions of a hastily erected tent in the middle of Hagley Park filled with green aproned staff and no customers. Thinking later, I believe the push to re-expand is more based on a need to build the economy of scale with suppliers that allows an acceptable cost structure. At the moment there would be several Mom and Pop owned cafes that would be doing a bigger trade than Starbucks remaining Riccarton Mall outlet (which nevertheless to me seems busier than it has ever been).

Starbucks NZ may be rudderless, but even the new man heading Pizza Hut New Zealand, Arif Khan has only been on the job for three weeks. He has Pizza Hut corporate experience in the Middle East and Morocco. I had a brief chat with him after the meeting and he came across as an energetic type who is eager to make a difference. Let’s hope Creedy can make use of him, even as he slashes the PH role in half by offloading up to half of the PH store network to private buyers over the next few years.

‘After meeting nibbles’ consisted of hunks of regular KFC, and Pizza Mia slices, served in the Peppers Restaurant at the Clearwater Resort. The food-serving partners were well trained, but I thought he food quality only adequate. Although could that be because never has such low brow food been served in such a high-class establishment?

SNOOPY

Blendy

24-06-2011, 05:13 PM

hahaha, i was wondering what sort of food would be served - thanks for the lovely commentary!

Very interesting to hear your comments from the meeting - sounds like there are some focused plans for the nearish future.

winner69

24-06-2011, 07:54 PM

Quote Snoopy: The second question related to KFC in Australia and whether RBD would be interested in going back to Oz, but this time with their most successful brand. Chairman Ted said that while their most recent foray into Australia with PH in Victoria was not successful, they do recognize that KFC is a different deal. There are no firm plans but ‘never say never’.

Was this raised cause KFC in OZ is on the block it seems

http://www.smh.com.au/business/kfc-sizzler-owner-to-tap-investor-appetite-20110624-1gj79.html

Anna Naum

28-06-2011, 08:02 AM

From todays SMH

Institutions may find Collins Foods offer appetising
Edited by Sarah Thompson and Khia Mercer
Institutional shareholders are taking a peek at the recipe behind Collins Foods Group, owner of about 120
KFC Queensland outlets and 25 Sizzler restaurants nationwide.
We’re not talking about Colonel Sanders’ 11 secret herbs and spices. Investors have been sifting through the
pre-marketing research for the mooted $400 million float since last week and feedback has been fairly
encouraging.
Collins Foods is pitched as a stable business, offering big upside from capital expenditure.
It’s generating fiscal 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) of $56 million
and has been growing in a steady, if unspectacular, fashion for the past three years. But it’s expected to post
$59 million of EBITDA in 2012 as the company works through a major renovation and refurbishment of the
KFC and Sizzler outlets.
New franchise agreements require a large number of stores to be brought up to minimum Yum! Brands
(KFC’s global owner) standards.
As a result, the raising will be two-fold with the first part firmly ear-marked for capital expenditure.
Deutsche Bank analysts reckon New Zealand-listed Restaurant Brands, a franchisee of 89 KFC stores, is the
ideal refurbishment case study. It began its KFC refurbishment program in 2005 and has so far revamped 49
outlets.
On Deutsche’s research numbers, the average refurb done by Collins of a KFC has cost around $900,000
and earned a nearly 25 per cent return on the money spent, whereas at Sizzler, that’s been closer to 18 per
cent.
The broker’s estimated enterprise valuation range for Collins Foods is between $395 million and $430 million,
based on 2011 pro-forma net debt of $100 million.
Deutsche Bank and fellow joint lead manager UBS expect the listing to take place in August. PEP and other
private equity owners are selling all of their stake (around 50 per cent), whereas long-serving chief executive
Kevin Perkins, is keeping the majority of his.
One fund manager thought the IPO would price at about the 9.5 to 10 times price-earnings mark.

Snoopy

03-08-2011, 07:32 PM

Collins Foods is pitched as a stable business, offering big upside from capital expenditure.
It’s generating fiscal 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) of $56 million
and has been growing in a steady, if unspectacular, fashion for the past three years. But it’s expected to post
$59 million of EBITDA in 2012 as the company works through a major renovation and refurbishment of the
KFC and Sizzler outlets. New franchise agreements require a large number of stores to be brought up to minimum Yum! Brands
(KFC’s global owner) standards.

On the assumption it always pays to check out the alternatives, I have cast my eye over the Collins Food Group (ticker CKF) prospectus. CKF is 'mainly' a KFC in Queensland play. The Sizzlers fried food and salad bar sit down restaurants (also mainly Queensland based) make up the balance.

I haven't applied for any shares in this float. That's mainly because on income sustainability metrics (dividend yield, growth prospects and forecast debt position) based on the indicative float price, it is inferior to RBD. I also remember the troubled time the original RBD shareholders had for the first two years after listing. And the risk of buying off a private equity player, possibly dressing up mutton for sale as lamb!

In this situation I always ask the question, why are those private equity players selling out? Reading between the lines, it looks like the sale is being driven by master franchise holder for KFC, YUM. CKF Sales growth has stalled, debt is high and private equity cannot generate the cash to step up the restaurant refurbishment program that YUM wants. Given this background, I believe this is a business worthy of serious investor consideration. However, buy in price will be critical, especially given the uncertainty of the business implementation plan.

I am watching, but am in no hurry to sell any RBD shares to free up the cash to invest.

SNOOPY

percy

03-08-2011, 09:12 PM

[QUOTE=Snoopy;353142]. And the risk of buying off a private equity player, possibly dressing up mutton for sale as lamb!

Surely you mean dressing up fowl as chicken. lol.

POSSUM THE CAT

04-08-2011, 10:01 AM

Snoopy Check the history of the Sizzler stores in Queensland They were having a lot of problems some years back. It is five years since this cat lived in Queensland.

Blendy

22-08-2011, 12:40 PM

Went to KFC for the first time in at least 10 years, really just so I could spend the free voucher that came with the shareholder meeting info. It was pretty good actually.

We wondered what the venn diagram would look like of KFC customers vs KFC shareholders :)

Snoopy

23-08-2011, 01:32 PM

We wondered what the venn diagram would look like of KFC customers vs KFC shareholders

Just two in that intersecting region: you and I Blendy. Or should I say just two who would admit to it.

SNOOPY

h2so4

23-08-2011, 02:01 PM

SD
So your investment in RBD is just another hedging play, so you can keep getting fat on dividends and chicken wings.:)

Blendy

23-08-2011, 02:29 PM

hahaha! :)

Snoopy

20-09-2011, 04:54 PM

Good operational results from Starbucks today, with per store sales up 6.2% on last year. It is a shame that 3 stores were lost in the Christchurch CBD. But that won’t affect RBD until next year when presumably the business interruption insurance runs out. Nevertheless I doubt that Starbucks after tax profit will be up because administrative overheads are being shared between six less stores for HY2012.

Pizza Hut per store sales down a further 13.5% from last years low figure is a bit of a disaster. I wonder if RBD can claim disaster insurance here for their disastrous management of Pizza Hut in New Zealand? Are any of the recently sold to owner franchiser stores doing better, now they are out from the RBD management umbrella? I am picking some more significant goodwill write-downs as RBD offload their Pizza Hut cast offs.

The KFC result with same store sales down 3.5% was a little disappointing. Disappointing that is, given all the hype around the ‘Double Down’ promotion that occurred over the period (even I bought one). What would KFC results have been like without ‘Double Down’? Perhaps that isn’t the question to ask. Overall I think the KFC marketing team did a good job in an otherwise difficult retail environment.

The October 19th headline profit result I predict will be headline poor. However, I believe that stripping out the non cash items, RBD has the cashflow to maintain their dividend at last year’s 7.0cps fully imputed. Likewise I will be maintaining my holding of RBD shares by not selling any. I don’t expect the RBD share price to be affected much because at $2.20 it is trading on such a modest earnings multiple.

SNOOPY

jonny5

20-09-2011, 05:16 PM

No more news on a flagship Taco Bell. I thought RBD would have fired another shot by now, perhaps in time for RWC. McD's has opened another outlet, not 100m from an existing.

Any insights?

Snoopy

23-09-2011, 09:42 AM

No more news on a flagship Taco Bell. Any insights?

Creedy on radio. No Taco Bell until RBD growth resumes.

SNOOPY

jonny5

23-09-2011, 09:57 AM

The beatings will continue until morale improves; got it.

Snoopy

23-09-2011, 01:09 PM

The beatings will continue until morale improves; got it.

Further insight you have into current RBD management practices would be appreciated jonny5.

SNOOPY

winner69

19-10-2011, 11:35 AM

The October 19th headline profit result I predict will be headline poor. However, I believe that stripping out the non cash items, RBD has the cashflow to maintain their dividend at last year’s 7.0cps fully imputed. Likewise I will be maintaining my holding of RBD shares by not selling any. I don’t expect the RBD share price to be affected much because at $2.20 it is trading on such a modest earnings multiple.

SNOOPY

Market doesn't quite get it or they don't believe the guidance

RBD says H1 earnings down $5m and $20 plus comes off the market cap even though management says they will make the same in H2 this year as last year - so H1 only a one off sort of thing

Probably not time to piss punters off ... esp reducing dividends

Anna Naum

02-11-2011, 06:40 PM

Collins Foods in AU (owner of KFC and Sizzler in QLD) announced a shocker downgrade today less then 3 months after floating (ex private equity).

Downgraded by about 25% its 2012 proforma NPAT, stock down 24%.

winner69

14-12-2011, 07:34 PM

So the new concept is soon to be launched

If they bring Audrina and Kim to the grand openings they should do well ..... or maybe a couple of NZ chicks should be used .... sex sells burgers according to carl

http://www.stuff.co.nz/dominion-post/business/6137342/New-burger-chain-tipped-for-Wellington

iceman

15-12-2011, 09:24 AM

I'm looking forward to next years spiced up (hopefully) dividends, Audrina, Kim, Padma and Paris will make my day :)

Snoopy

15-12-2011, 06:14 PM

So the new concept is soon to be launched

The market seems to be happy with a move into an upmarket burger chain. Share price looks stable in a down market. At least management have now answered the question: "Where will the growth come from?"

I think it encouraging that RBD have elected not to go with Taco Bell. That shows independence of thought is still there at board level, despite the strong existing links with Taco Bell's parent YUM Brands.

The main negative I see is the restricted development in Auckland due to Michael Jones already operating a couple of outlets there. Michael may be a strong man, but corporates are always stronger. The long term strategy will be to wait for Michael to age then 'make the tackle' as the life force saps out of him. That will unite all of the Carl Junior Burger outlets under the RBD banner.

SNOOPY

777

15-12-2011, 06:22 PM

Carls Junior? While I have bought from their I would hardly say it was an upmarket Burger chain. OK but middle of the road. Not a good move IMHO. NZ is too small to support extra fast food joints that are mediocre.

ratkin

15-12-2011, 06:39 PM

Agreed , they already gaining bad press for having Americas most unhealthy burgers. Some kind of mexican style chain would of been much better , shame they couldnt get taco bell

brucey09

15-12-2011, 07:17 PM

Snr. Rat
Mex is no answer - NZ not likes

emearg

15-12-2011, 07:37 PM

Moving into Australia was their last grand plan for growth wasn't it? That didn't go very well.

Personally I think they should concentrate on making their existing business much better than they are. Pizza Hutt and Starbucks are a worry.

I remember attending their AGM three or four years ago when they first mentioned possible new business options. I remember being rather scared as Pizza Hutt was doing even worse than it currently is. I remember thinking if they did go ahead with new brands I would struggle to find reasons not to sell sooner rather than later. My feelings haven't changed as they haven't demonstrated any real ability to solve their existing problems. It seems a little bit like a couple having relationship difficulties deciding to have a baby.

Thankfully I don't need to worry as I sold a while ago to buy a house but I will watch this one with much interest.

emearg

15-12-2011, 07:39 PM

Snr. Rat
Mex is no answer - NZ not likes

I tend to agree. If you are going to get Kiwis liking Mex you have to do it very well and fast food chains don't do anything particularly well (IMHO)

15-12-2011, 07:46 PM

The long term strategy will be to wait for Michael to age then 'make the tackle' as the life force saps out of him. That will unite all of the Carl Junior Burger outlets under the RBD banner.RBD should go for the knee - he is weak there. Does anyone know how big his area is - just sought auckland, all of auckland? Why would you buy an area master franchise for only part of a country. Could be a stroke of genius though as they will capitalise on any RBD advertising and once sales are up, an almost guaranteed buyer.

Will be interesting to see how they will go. I know Wendys, Burger Wisconsin and Burger Fuel are looking to expand. I personally pick the later two to win in NZ but haven't tried Carl Jr yet so will be interested to see what it is like.

Brucey - I disagree. NZ (well me at least) loves mexican but cant get it anywhere other than Mexicali (old el paso in the supermarket is also popular). At the right price (ie. fast food price) it would do well

Queenstfarmer

15-12-2011, 09:09 PM

KFC dedicated restaurants..no drive thrus on these. Keep the other takeaways and drive thrus as they are and they might just start eating into Macdonalds sales.

Snoopy

07-03-2012, 10:58 PM

Personally I think they should concentrate on making their existing business much better than they are. Pizza Hutt and Starbucks are a worry.

Fourth RBD quarter sales are out today. 'The market' appeared not to like it with the share price down 7c to $1.92. However, this fall was on a mere 20,000 shares, so I don't see this share price fall as significant. Probably just a small shareholder thinking the grass will be greener somewhere else (an erroneous conclusion in my view).

Most of the sales decline has come from earthquake affected and now closed stores. All of these lost sales will be covered by insurance, so the decline in profitability will not match the sales decline for FY2012.

Pizza Hut has continued to perform badly. So we expect more writedown of goodwill when year end results are announced as stores are sold off, all of which is no surprise to me.

The results from Starbucks look encouraging. Perhaps there is some serious behind the scenes work going on to get this whole division sold now? The sole remaining Starbucks in Christchurch seems quite busy whenever I walk past it.

SNOOPY

brucey09

08-03-2012, 06:29 AM

Snr Snoopy
Do not forget jnr carl - he sell well.

Silverlight

08-03-2012, 11:14 AM

The results from Starbucks look encouraging. Perhaps there is some serious behind the scenes work going on to get this whole division sold now? The sole remaining Starbucks in Christchurch seems quite busy whenever I walk past it.

SNOOPY

Starbucks coffee is not even made by "barista's" any more, they have replaced, or are in the process of, replacing all their espresso machine's with push button ones, very disappointing from a consumer point of view, but at least taste/ flavour will be consistent. Maybe this change was a caveat for RBD to sell the chain, as less chance of an inconsistent product damaging the brand for Starbucks International.

08-03-2012, 04:17 PM

Not sure about RBD right now
First Half Revenue 166.8m NPAT 8.6m
Second Half Revenue 141.4m NPAT ?
Hard to see FY NPAT meeting their forecast of 20M

Snoopy

09-03-2012, 02:21 PM

Starbucks coffee is not even made by "barista's" any more, they have replaced, or are in the process of, replacing all their espresso machine's with push button ones, very disappointing from a consumer point of view, but at least taste/ flavour will be consistent. Maybe this change was a caveat for RBD to sell the chain, as less chance of an inconsistent product damaging the brand for Starbucks International.

Interested in your comments Silverlight. Do you think it is a problem getting rid of Baristas if the quality of the coffee is made more consistent? Have you had a poor experience at Starbucks yourself?

SNOOPY

Snoopy

09-03-2012, 02:25 PM

Not sure about RBD right now
First Half Revenue 166.8m NPAT 8.6m
Second Half Revenue 141.4m NPAT ?
Hard to see FY NPAT meeting their forecast of 20M

Fair point KJ. They did mention that the World Cup was disappointing for them.

However, I don't think that a sales decline necessarily reflects a profit decline. Pizza Hut was losing money. So perversely the less pizzas that are sold, you may find that this improves RBD company profitability rather than weakens it.

SNOOPY

Silverlight

09-03-2012, 04:47 PM

Interested in your comments Silverlight. Do you think it is a problem getting rid of Baristas if the quality of the coffee is made more consistent? Have you had a poor experience at Starbucks yourself?

SNOOPY

NZ's coffee culture is well evolved, and starbucks culture is to say their way is the best, which grates with NZers and the NZ coffee culture. However, they did have real baristas, which most people appreciate, as being a barista does take skill and that, in my mind, is what you pay for in a $5+ cup.

I appreciate a well made espresso, but so many cafes that have a espresso machine have average barista's. Starbucks always had above average barista's in my view, and Starbucks policy of replace your drink if you are not happy, and give you a free voucher for the next one, always has gone down well with me, as I would happily go buy a latte or an americano, knowing that if I wasn't happy I could take it back and the next one would also be free.

Additionally some starbucks beans are superior in quality and flavour to beans roasted in NZ (ie Kenyan and Italian) and this is a misnomer among most coffee experts in NZ, as they dismiss starbucks straight away; however this point is rather moot as coffee bean sales are not large and probably never will be.

RBD though have always run Starbucks as if a latte is the same as a piece of chicken, stick it in the deep frier for 2 minutes, pull it out, presto. Therefore maybe the training of barista's has led to a variability in the product being delivered, as some baristas working for the chain clearly indulge in being a barista and make an excellent coffee, where others don't care and make just a nice coffee. This variability in product is hard to control unless you remove the barista from the equation, replace with a machine and you get a consistent product, average, but consistent.

Will customers continue paying $5+ for coffee that takes no skill? Maybe they now pay the staff less, maybe they have less wastage, maybe less complaints, maybe their turnover is lower, but maybe the costs are lower still, and maybe starbucks actually turns a profit, maybe just maybe... or customers leave starbucks in droves for real coffee, and the brand continues to languish as it already has for 14 years under RBD...

Snoopy

12-03-2012, 04:08 PM

NZ's coffee culture is well evolved, and Starbucks culture is to say their way is the best, which grates with NZers and the NZ coffee culture. However, they did have real baristas, which most people appreciate, as being a barista does take skill and that, in my mind, is what you pay for in a $5+ cup.

Interesting comments Silverlight, from the pesrpective of view of someone who is not a coffee connoisseur (me). This is going to sound rather low brow to you, but I often judge a cafe by whether they can serve a hot drink that is actually hot. It is surprising the number that cannot do this, (although I should point out that I do not frequent Starbucks).

I appreciate a well made espresso, but so many cafes that have a espresso machine have average barista's. Starbucks always had above average barista's in my view, and Starbucks policy of replace your drink if you are not happy, and give you a free voucher for the next one, always has gone down well with me, as I would happily go buy a latte or an americano, knowing that if I wasn't happy I could take it back and the next one would also be free.

As a shareholder this free voucher policy will be costing me! But if it keeps customers happy, then I am happy for Starbucks to do it.

Additionally some starbucks beans are superior in quality and flavour to beans roasted in NZ (ie Kenyan and Italian) and this is a misnomer among most coffee experts in NZ, as they dismiss starbucks straight away; however this point is rather moot as coffee bean sales are not large and probably never will be.

I presume you are talking about the takeaway packaged beans here? Good point about people dismissing coffee beans just because they are branded Starbucks. But as you say I am sure those counter sales are part of the total image rather than contributing seriously to profitability with New Zealand.

RBD though have always run Starbucks as if a latte is the same as a piece of chicken, stick it in the deep frier for 2 minutes, pull it out, presto. Therefore maybe the training of barista's has led to a variability in the product being delivered, as some baristas working for the chain clearly indulge in being a barista and make an excellent coffee, where others don't care and make just a nice coffee. This variability in product is hard to control unless you remove the barista from the equation, replace with a machine and you get a consistent product, average, but consistent.

The question is though, are you saying you cannot program a coffee machine to do a cup of coffee right, for most people? Do you give your barista special instructions, or do you leave everything up to them?

SNOOPY

Silverlight

13-03-2012, 09:38 AM

The question is though, are you saying you cannot program a coffee machine to do a cup of coffee right, for most people? Do you give your barista special instructions, or do you leave everything up to them?

SNOOPY

There are a lot of variables, however in a controlled environment you probably could, but the perception of vending machine coffee vs real espresso could be quite damaging to brand image.

In the interest of 'research' ;) I will have a visit today and buy a latte, and watch with anticipation as it is made, and report back on the experience.

13-03-2012, 10:22 AM

Snoopy. some of it is perception. I know people who go to coffee shops ratehr than use the free work machine (high quality machine that grinds on demand) because they perceive it to be better.

Some is luxury. The coffee is a treat. If it is just a push button brew, why not do it at home/work instead.

some of it is coffee snobs. a machine cant do it as well as a person (wrong but only because not programed to how they want it. the manchine will be more consistant)

emearg

14-03-2012, 01:46 PM

14-03-2012, 03:00 PM

They are in the process of rolling out a new brand so that will be capital intensive ($3m per store I think I read) and that is directly head to head with MCD and BK. At least KFC has something unique.

Other than that, I would have through it was a pretty solid stock. People will keep buying regardless of the economy.

Disc: hold and wonder why it is dropping too.

bung5

14-03-2012, 04:25 PM

are the dividends generally fully imputed?

iceman

14-03-2012, 04:50 PM

are the dividends generally fully imputed?

Yes they are bung5. Big turnover in this stock today but unfortunately it continued its downward trend !

14-03-2012, 07:40 PM

So other than the coffee thing, which has always been pretty small beer compared to the chicken thing, what else is driving people away from this share? PE is 8.1 (according to NZX.com) which seems pretty cheap. Is it Pizza Hutt? Or the risk of them buying something new and not running it properly? Are their dividends sustainable? All thoughts appreciated :)

You need to look ahead to the coming years profit when thinking of PE- I think that the market may doubt that the $20m forecast will be met.Time will tell.

emearg

15-03-2012, 07:14 PM

You need to look ahead to the coming years profit when thinking of PE- I think that the market may doubt that the $20m forecast will be met.Time will tell.

Yes their future doesn't look as bright as it did two years ago, but still not bad thanks to KFC. I will wait a while I think for it to bottom out. No rush to buy in my opinion.

iceman

15-03-2012, 11:50 PM

Yes their future doesn't look as bright as it did two years ago, but still not bad thanks to KFC. I will wait a while I think for it to bottom out. No rush to buy in my opinion.
Agree emearg that future is questionable and possibly not as good as it was a couple of years ago. But the Co has significantly recuced debt and has indicated increased dividend payments as share of profits. So as long as this downtrend doesn't continue for much longer, I am happy to continue being overweight in RBD

iceman

16-03-2012, 12:10 PM

Hopefully we are out of the downtrend ! See ACC has added another million shares this week.

16-03-2012, 01:33 PM

Hopefully we are out of the downtrend ! See ACC has added another million shares this week.ANd Westpac/BT added 2m. Hopefully todays rise continues.

16-03-2012, 04:55 PM

Agree emearg that future is questionable and possibly not as good as it was a couple of years ago. But the Co has significantly recuced debt and has indicated increased dividend payments as share of profits. So as long as this downtrend doesn't continue for much longer, I am happy to continue being overweight in RBD

I missed that-when did they indicate increased dividend payments?

iceman

17-03-2012, 08:15 AM

I missed that-when did they indicate increased dividend payments?

This is taken from their website KJ but of course all dependant on continued profits and cashflow. Not sure yet how rollout of Carl Jr's will affect this:
Restaurant Brands has no fixed distribution policy. In the year to February 28, 2011 the company
paid out out 64% of net profit after tax in dividends. The Board of Directors intends to increase
the pay-out to shareholders as long as profitability and free cash flow continues to grow and the
company can satisfy requirements to reinvest in the business.

17-03-2012, 11:01 AM

This is taken from their website KJ but of course all dependant on continued profits and cashflow. Not sure yet how rollout of Carl Jr's will affect this:
Restaurant Brands has no fixed distribution policy. In the year to February 28, 2011 the company
paid out out 64% of net profit after tax in dividends. The Board of Directors intends to increase
the pay-out to shareholders as long as profitability and free cash flow continues to grow and the
company can satisfy requirements to reinvest in the business.

Thanks for that.

22-03-2012, 09:05 PM

Getting close to FY announcement-with no profit update in the market you would think that the coy must be fairly close to the $20m number.Have been out for sometime but it may be time to get back in.

Te Whetu

03-04-2012, 11:18 PM

DISC: HOLD

I'm struggling to reconcile the following:

From the Press Release:
Group non-trading charges of $2.3 million ($2.0 million in 2011) included a pro rata write off of goodwill following Pizza Hut store disposals ($1.5 million), Pizza Hut and Starbucks Coffee store closure costs (mainly fixed asset write offs) of $0.6 million and KFC transformation write offs of $0.2 million.

Non-trading from the financial statements
KFC – $118k
Pizza Hut – $2,110k
Starbucks – $88k
TOTAL – $2,316k

Note that the $2,316k does reconcile with the consolidated income statement at the end of the press release.

Haven't been right the way though the financials as I generally start with "non-trading".

OK now I've got it...

The goodwill DISPOSAL is $1,518k, the write off is $1,326k, so I think they got this wrong, should have had $1.3m.

Other store closure costs are $597k, so this is correct.

Looks like the $0.2 million figure is just a balancing item since they confused the goodwill write-off...

Overall, probably not a major ...

Snoopy

04-04-2012, 06:24 PM

I don't agree that without the benefit of hindsight the expansion into Victoria was a bad move Macdunk. If you add up the losses incurred by RBD in Victoria over five years, as detailed in my spreadsheet of the four divisions, I come up with:

$9.51m+ $8.01m +$3.29m + $4.05M +$5.80m= $30.66m

of shareholders funds down the drain. Nevertheless that is the sort of money it takes to establish an overseas chain. HLG and MHi have expanded successfully into the Australian market. If the Victoria venture had succeeded then RBD could well be worth $1.70 or more today. But that chapter for RBD is now closed and we have to move on.

Just reflecting a bit on my four year old post of 20-02-2008. RBD did recover from their Victorian -er- adventure. It was around four years ago that I was last in Victoria and South Australia and I have to report just coming back to NZ again after a brief March 2012 visit. It looks like the KFC operators in SA and VIC have very much adopted the RBD refurbishment model. Almost all KFC stores that I saw look like they had been plucked straight from the RBD refurbishment program in New Zealand.

KFC in Oz also seems to be promoting their food at less junky through a 'goodification' TV advertising campaign. Shots of KFC workers being sent out to organic farms to chase chickens and then sitting down to a KFC fry up of the same. The TV campaign looked more effective than the way I have just described it.

And what happened to Pizza Hut? From my very superficial eye about, they seems to have virtually disappeared in the visibility stakes. One or two modest looking takeaway outlets sited as they continue to take a battering from Dominos....

SNOOPY

Te Whetu

04-04-2012, 11:28 PM

And what happened to Pizza Hut? From my very superficial eye about, they seems to have virtually disappeared in the visibility stakes. One or two modest looking takeaway outlets sited as they continue to take a battering from Dominos....

Pizza Hut continues to be an unmitigated disaster, average store turnover is now $600,000 to $650,000. Pizza Hut makes an EBIT loss.

Starbucks... unexciting, small, contributes to management/head office costs.

KFC continues to be the stand out performer (though slightly down in the current financial year).

I think Carl's Jr has some potential, kiwi's lover burgers, burgers are cheap to make (vs sale price), and the Carls Jr offering seems a good fit in the market. But I'm guessing the roll-out will be a 4 to 5 year process; so little impact on value (either positive or negative) in the short term.

winner69

05-04-2012, 06:12 AM

05-04-2012, 06:49 AM

When they hock off a Pizza Hut store to a private owner do tey collect any ongoing franchise fees from thr new owner

If so where does this shoe in the accounts .... anybody know

Hocking off something making a loss .... but still clipping the ticket on the way through for use of the name should be +ve for RBD .... yes?Not sure with Pizza Hut specifically but generally with a franchise, the purchaser pays an upfront fee, plus training if required. Then they pay ~8-10% of turnover being split between franchise fee and advertising (ie. advertising is done by the franchiser, not the franchisee).

Onthemoney

05-04-2012, 02:06 PM

Snoopy

05-04-2012, 04:22 PM

When they hock off a Pizza Hut store to a private owner do they collect any ongoing franchise fees from the new owner

If so where does this shoe in the accounts .... anybody know

Hocking off something making a loss .... but still clipping the ticket on the way through for use of the name should be +ve for RBD .... yes?

Winner the reason that certain Pizza Huts are being sold is that RBD management have the view those business units cannot be profitable under the RBD corporate model. When a PH is sold off by RBD, then RBD wipes its hand of it and the new owner pays any franchise fees due to YUM directly.

However with a national chain like this there is a single NZ nationwide marketing umbrella that covers all NZ PH outlets. I believe that RBD does control this. So some of those YUM franchise fees will find their way back into RBD coffers as a way for those new franchisees to pay their share of the nationwide advertising costs.

The answer to your question is yes there should be some ongoing economies of advertising scale benefits to RBD as a result of these new franchisees pumping up the RBD marketing department. I suspect it will show up under that catchall header 'other income'.

Nevertheless the real benefits once a PH is sold will flow mainly to master franchise holder YUM, not RBD.

SNOOPY

winner69

06-04-2012, 07:04 AM

Thanks for that Snoops ... hadn't thought of the franchise reverting back to YUM .... so I won't be looking to find out out how much fees RBD might have been collecting

percy

06-04-2012, 09:02 AM

Yum Brands used to charge franchise fee of approx 10% of gross turnover.

06-04-2012, 04:25 PM

I thought that their FY result was a bit disappointing.

The coy needs to be a bit more accurate when releasing information or folk will stop taking them seriously.
(1) NP for the year-20m-wrong!
(2) Second Half profit would would be no worse than same period last yr-wrong!

In fact there is a worrying trend developing:
2011
First Half NPAT 13.9m
Sec Half 11.2m

2012
F Half 8.6m
S Half 9.8m

While I like the coy for its Div yield I hope that they can make a go of CARL- P Hut & Starbucks are nothing to get excited about.

emearg

06-04-2012, 05:19 PM

winner69

07-04-2012, 02:53 PM

RBD must be the most frustrating stock to follow if growth is what poeple want .... growth is non existent .... but the likes of Snoopy have the right appraoch to make money out of RBD .... just hold long term collect the divies and don't worry about the quarterly sales or the annual profits .... waste of time

Chart below is RBD revenues over the last 10 years .... everything they have done .... bought, closed, revamped, expanded etc .... and still where they were 10 years ago ... a $300m company (even 3% pa growth would have it a $400m company by now!!)

Maybe obe should keep an eye on performance. Du Pont came up with an interesting ratio and interestingly the RBD shareprice follows this ratio pretty well. RBD did well on most measures from 2008-2011 but 2012 has seen the three things that the Du Pont ratio measures fall back a bit .... like operating efficiencies (profit margin) is down ..... asset use (sales per asset) is not as good .... and financial leverage is a bit worse (increasing shareholder equiyt without growing the business)

Wouldn't want to see these trends continuing .... but then the likes of Snoopy will still be doing OK as he collects his divies year after year

Snoopy

07-04-2012, 03:26 PM

If the Carls Brand is going to be so great perhaps they should convert all their Pizza Hutt stores in Carl Juniors?

I presume YUM won't let them.

There would be big write offs involved but that might be better than continuing to flog an almost dead horse just because they have to...

Those PH store contracts are renewed on a ten year basis emearg. So it would take some time for RBD to roll out of their contracts. Also most of those PH premeses are rented off independent landlords. They might have to agree on changes to their lease. Furthermore I think YUM would have some restrictive trade agreement about turning their visible site into the competition. I recall some shareholder putting the question to RBD management about ditching KFC and setting up their own chicken brand when the multimillion dollar ten year concept costs were up for renegotiation and this is where I seem to recall the restraint of trade clause coming out.

I am not sure PH is dead. I can't see why it couldn't do as well as Dominos is doing, if the concept is appropriately managed. But short of head hunting Don Rae from Domino's Australia, I am not sure where RBD can look for their Pizza management talent.

SNOOPY

percy

07-04-2012, 03:58 PM

Going by the bun fight between Western Australian frachisee and Yum Brands,Yum Brands have restraint of trade clauses,and in Western Australia they are refusing to renew franchise agreements for existing stores.

winner69

08-04-2012, 03:05 PM

and even with this they can't make money
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10797343

Probably claim they are doing a public service by keeping boy racers off the street!

skid

10-04-2012, 09:08 AM

For those who are really looking to get ahead,you could invest in RBD for divies and the healthcare sector for real profits LOL

Snoopy

12-04-2012, 04:34 PM

For those who are really looking to get ahead,you could invest in RBD for divies and the healthcare sector for real profits LOL

You could have added a smilie to your post Skid.

Nevertheless for those who took your post literally, the NZX50 accumulation index has gone from about 2000 to 3500 over the last ten years, a gain of 75%. The RBD price has effectively gone nowhere over that same time period. However 88cps of dividends have been paid over that time. That is a gain of 44%. Put in a time value for money adjustment on all of those dividends and RBD will still have underperformed the index, but I would pick not by much. By the time you pay a 1% managment fee per annum on your index fund I would say there is virtually nothing in it.

So just buying and holding RBD for ten years, at not particularly favourable pricing, wouldn't be too far off buying an index fund.

Contrary to what you might think you can make real money from just buying and holding RBD long term. Of course for those of us with an average share purchase price far below $2, we have done an awful lot better than those index returns.

SNOOPY

percy

21-04-2012, 09:30 PM

I see KFC guilty in Australia salmonella brain damage case.Must admit I have not gone near KFC for 15 years after I was ill with a stomach bug after a KFC meal.Must admit I have not gone near a Gin bottle for over 30 years .That was too much though. !!!!!

kizame

21-04-2012, 11:49 PM

Had KFC the other night,first time in about a year,just to remind myself how disgusting it is.
Chicken pieces are way smaller than they used to be.Very quick service though at the drive thru.
Had pizza from pizza hut about 2 weeks ago for the same reasons as the KFC haha,called in and ordered,took forever,who said it's fast food.
For chain takeaways,you can't beat Subway,and for a real treat Burgerfuel,you don't feel like you've been fat raped just afterwords haha.

22-04-2012, 11:04 AM

Kizame - just look at the general population - they dont mind getting fat raped as you put it.

Disc: hold

Offtopic: looking at Burgerfuels website, it looks like they are expanding in NZ again (disc: hold indirectly)

Blendy

23-04-2012, 07:49 AM

Offtopic: looking at Burgerfuels website, it looks like they are expanding in NZ again (disc: hold indirectly)

Yes, I noticed their ad on the franchise.co.nz website yesterday - you can set up a Burgerfuel presumably anywhere in the country for $250-$350k. Although I'm not sure if that includes shop outfitting and cost of renting a retail space, legal fees etc. http://www.franchise.co.nz/franchise-opportunities/23-burgerfuel

23-04-2012, 09:18 AM

Yes, I noticed their ad on the franchise.co.nz website yesterday - you can set up a Burgerfuel presumably anywhere in the country for $250-$350k. Although I'm not sure if that includes shop outfitting and cost of renting a retail space, legal fees etc. http://www.franchise.co.nz/franchise-opportunities/23-burgerfuelThe $350k figure would include everything you pay upfront including, initial franchise fee, fitout and even the initial training I think. The ongoing franchise fees, advertising fees, lease costs, stock, etc are normal monthly expenditure and are expected to be covered by sales (some stores obviously do better than others) so you would need to budget a bit extra for working capital as well.

Snoopy

21-06-2012, 04:15 PM

Pizza Hut continues to be an unmitigated disaster, average store turnover is now $600,000 to $650,000. Pizza Hut makes an EBIT loss.

After taking time to read the FY2012 Annual Report, I think Star man has nailed the most important point.

Pizza Hut has always carried a lot of goodwill in the RBD books. This is a legacy of RBD buying out Eagle Boys all those years ago. Initially the buy out seemed to be working. But once the Dominos machine got going, Pizza Hut was exposed as a second rate Pizza chain that had failed to make the 21st century transition. The only way PH seem to be able to increase sales in NZ is through discounting. And if your current profit margin is zero, that can't be sustainable in the medium term.

I never could figure out why year after year the PH goodwill was valued in RBD accounts using forecast sales and profit margins. Year after year PH failed to achieve their sales targets and profit margins. Yet year after year that goodwill was largely untouched for value in the RBD annual accounts. (I say largely untouched because the more recent sell down of certain Pizza Hut store to private owners has forced RBD to crystallize the latent losses relating to the 'fictional goodwill' on those particular stores).

On p47 of the FY2012 Annual Report my question was finally answered:

"As a result of the review based on key assumptions (sales growth of 2% from 2013 to 2015, margin improvements and terminal growth of 2.5%) the calculation shows the recoverable amount approximates the current carrying amount (2011: headroom of $5.8m)."

This is the first time the word 'headroom' has been used in this context.

What this means is that in previous years RBD have modeled some fictional growth scenario which gives an answer for 'virtual goodwill' above the book figure. For the first time RBD have had to admit the fictional story telling scenarios are over. The stunning consequence is revealed in the small print on page 48. RBD are looking at a potential $8.4m write down if Pizza Hut sales do not recover from current levels! Of course this will be a non cash write down which may ease the pain. Long term shareholders will remember this was cash once though!

I haven't believed this Pizza Hut goodwill could be justified for many years. In my own modeling on the company I have continued to write off this goodwill at the rate that pre IFRS accounting rules demanded, an amount over $2m per year. That means I see Pizza Hut lost $7m in FY2012 (after allocating head office overheads, and net funding interest) whereas for others it 'only' lost $5m. I would argue that taking into account the p48 revelations, my treatment of the results looks more accurate. But neither figure is pretty and despite the sell down, the Pizza Hut divisions decline is accelerating.

Incredibly management don't seem to have a solution apart from sticking their head in the sand and putting their time resources into Carl Jr!

SNOOPY

Sauce

21-06-2012, 04:38 PM

Good post snoopy.
i wonder if we will see a similar scenario play out with the book value of metlifecare's retirement villages portfolio.
regards
sauce

Snoopy

21-06-2012, 05:01 PM

After taking time to read the FY2012 Annual Report..

One thing regarding General and Administrative expenses did confuse me. On p26 G&A Expenses were $11.333m. Yet if you turn to the segmental reporting on p41 the consolidated G&A expenses are listed at $10.002m.

I solved this discrepancy as follows (all figures taken from p41):

$11.333m ( G&A expenses in Statement of Comprehensive Income)

less $0.522m ('All Other' segment depreciation)
less $0.013m (loss on sale of 'All Other' PP&E)
less $0.082m (amortization all other segments)
less $0.714m (independent franchisee income, as described in Note 6)

=$10,002m

I took particular notice of this, because I think it hints at a possible growing future income stream for RBD. As all those PH stores are sold off, RBD should expect a contribution from the new owners towards a national advertising budget for Pizza Hut. $714,000 doesn't sound that significant but as those PH stores are sold it should grow. But something is wrong.

That $714,000 seems to be increasing G&A expenses. That means RBD are paying those new franchisees money not receiving it! Can this be correct? If not can someone please point out my blue!

SNOOPY

Sauce

21-06-2012, 05:46 PM

Good post snoopy.
i wonder if we will see a similar scenario play out with the book value of metlifecare's retirement villages portfolio.
regards
sauce

Classic, little did I know it was already the case

"Separate to the Vision and PSL deal, Metlifecare told investors that a preliminary valuation of its properties by CBRE showed that its net asset value was likely to fall by as much as 20 per cent from $578m as of December 31 to $462.4m."

I think this kind of fair value accounting has little going for it and can cause a lot of misconception and possibly worse

Regards
sauce

Te Whetu

21-06-2012, 07:58 PM

Hi Snoopy

Good post. Also you reminded me to check to see if they had fixed the error. Nope, the CEO statement states:

"Group non-trading charges of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.5 million), Pizza Hut and Starbucks Coffee store closure costs (mainly ﬁxed asset write offs) of $0.6 million and KFC transformation write offs of $0.2 million."

Based on RBD's account it should have read:

"Group non-trading charges from continuing operations of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.3 million), Pizza Hut and Starbucks Coffee store closure costs (mainly ﬁxed asset write offs) of $0.6 million and other non-trading charges of $0.4 million."

The KFC transformation write-off is unlikely to be $0.2 million... total KFC non-trading items were $0.1 million. Yes the differences are small, but it's the CEO statement, it should be correct.

As for your reconciliation between G&A in the accounts and G&A in the notes. The fact you're able to reconcile those two figures using the values you used is likely a coincidence. The reason: you can't perform the same reconciliation for FY11.

The actual reason for the variance between the two G&A figures is likely items such as depreciation. Some depreciation will be included in the accounts G&A, while it is shown separately in the notes.

DISC: STILL HOLD

Snoopy

22-06-2012, 01:25 PM

Hi Snoopy

you reminded me to check to see if they had fixed the error. Nope, the CEO statement states:

"Group non-trading charges of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.5 million), Pizza Hut and Starbucks Coffee store closure costs (mainly ﬁxed asset write offs) of $0.6 million and KFC transformation write offs of $0.2 million."

Based on RBD's account it should have read:

"Group non-trading charges from continuing operations of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.3 million), Pizza Hut and Starbucks Coffee store closure costs (mainly ﬁxed asset write offs) of $0.6 million and other non-trading charges of $0.4 million."

The KFC transformation write-off is unlikely to be $0.2 million... total KFC non-trading items were $0.1 million. Yes the differences are small, but it's the CEO statement, it should be correct.

Star Man, I do not want to suggest that there is anything incorrect in what you have written. But I am of the opinion that some of this 'operational data' resides in grey area of interpretation, where more than one perspective of the figures could be valid.

'Other non trading expenses' to me conjures up visions of a financial laundry bucket. The analogy here is that if your clothes get a little messy then stick them in the bottom of the bucket. It isn't transparent so hopefully no one will notice!

I have inquired with RBD management about these non trading items previously , and here is the explanation that was given to me.

There is sometimes a mismatch between the timing of property lease agreements and business concept lease agreements. If for example the landlord wishes to demolish your Starbucks coffee store, and you find a new location for that store just down the road, then you will need to terminate your old agreement with Starbucks (with whatever penalty charges that entails) and enter into a new agreement with your coffee concept masters. The new store may be a different shape and size and will obviously need to be redecorated to reflect its new status as a Starbucks store. Some of the furniture from the old store may be reused, but some may have to be written off even though it is not 'worn out'. Most Starbucks stores would probably be freshened up at least every ten years even if they were not moved. But relocation and refurbishment of a store definitely requires some capital fit out expenditure above the norm.

While this 'moving expenditure' has been incurred in the normal course of business, it is not representative in terms of looking at the amount of coffee sold. This is why management see this expenditure as 'non-trading' even though another perhaps equally valid view is that these are normal costs of doing business.

From the point of view of an investor in RBD, I have come down on the the side of 'our Russel' and I think of such expenditure as a one off. If I included such expenses as 'continuing operationsal expenses' that might cloud any ongoing the ongoing performance review of the business. YMMV.

SNOOPY

Te Whetu

22-06-2012, 06:09 PM

I have a massive problem with how RBD management presents the RBD accounts. They present "Concept EBITDA" as if it's EBITDA. It completely excludes more than $10 million of G&A costs. When RBD refers to EBITDA it should refer to EBITDA after G&A. They even bring G&A costs below the EBITDA line for items which relate specifically to individual brands (e.g. area managers are not included in EBITDA). It's farcical, and does not help current or potential investors to make informed decisions.

As for your comment that 'Other non trading expenses' conjures up visions of a financial laundry bucket. I don't disagree. In fact I wholeheartedly agree. RBD puts costs in non-trading which don't properly belong in non-trading. However, the point I was trying to make was that I don't think you'll be able to reconcile between G&A in the accounts and G&A in the notes. There are valid reasons for the variance exists, which means it's difficult to spot if there are also dodgy reasons for the variance.

kiwi_on_OE

22-06-2012, 10:07 PM

Snoppy - the $714,000 'income'. Just a thought - perhaps it's not included in the $11.333m G&A expenses in Statement of Comprehensive Income (which would make sense), but it is in the $10.002m consolidated G&A expenses, as this figure is a bucket holding all sorts of rubbish, including income, not just expenses.

Snoopy

23-06-2012, 03:24 PM

I have a massive problem with how RBD management presents the RBD accounts. They present "Concept EBITDA" as if it's EBITDA. It completely excludes more than $10 million of G&A costs.

I well remember during the salmonella era (when previous CEO Vicki salmon was at the helm) a very bullish press release detailing a significantly improved "Concept EBITDA" profit. The union seized on the bullishness and suggested it was an opportunity to boost front line workers wages. It was only then than Salmon sheepishly admitted that once G&A head office costs were added in that with the exception of KFC all the other units were actually loss making!

SNOOPY

Snoopy

23-06-2012, 03:29 PM

However, the point I was trying to make was that I don't think you'll be able to reconcile between G&A in the accounts and G&A in the notes. There are valid reasons for the variance exists, which means it's difficult to spot if there are also dodgy reasons for the variance.

This brings to mind an old story a teacher told me in my school days, which goes like this:

----

I was riding along the footpath on my motorcycle when a policeman stopped me.

He said "You can't do that!"

Whereupon I looked him straight in the eyes and said

"Don't be such a pessimist, I've just done it!"

---------

Now I am well aware that people have the ability to see patterns where there are none. But in this case the number bridge:

$11.333m ( G&A expenses in Statement of Comprehensive Income)
less $0.522m ('All Other' segment depreciation)
less $0.013m (loss on sale of 'All Other' PP&E)
less $0.082m (amortization all other segments)
less $0.714m (independent franchisee income, as described in Note 6)
=$10,002m ( consolidated G&A expenses in Segmental Reporting)

does balance. And if I do the same exercise for the previous year and the year before that it balances as well. I am prepared to accept that one set of numbers might balance by chance. But after doing the same exercise twice more with everything bridging as expected, I am forced to conclude that I have actually done what I set out to achieve!

SNOOPY

Snoopy

23-06-2012, 03:40 PM

Snoopy - the $714,000 'income'. Just a thought - perhaps it's not included in the $11.333m G&A expenses in Statement of Comprehensive Income (which would make sense), but it is in the $10.002m consolidated G&A expenses, as this figure is a bucket holding all sorts of rubbish, including income, not just expenses.

Kiwi, here is my best attempt to word out an explanation so far.

$11.333m is the G&A expenses in Statement of Comprehensive Income.

It makes sense to separate out the General and Administrative Support centre depreciation ($0.522m) and amortization ($0.082m) and loss on sale of Property Plant and Equipment ($0.013m) because these expenses are not related to three restaurant group concepts in any direct way.

$11.333m= $0.522m + $0.082m + $0.013m + ? => ?= $10.716m

However by focusing on the income from KFC/PH/SB only, that means I am ignoring the extra income that only head office sees. This being the $0.714m which is income from non RBD KFC and PH outlets, largely a contribution towards national advertising. Mathematically a decrease in recognized income is the same as an increase in recognized costs. So if we add the head office income on as an extra cost opposing the PH/KFC/SB income this will give an accurate indication of the profitability of the KFC/PH/SB concepts.

Sounds plausible and it makes the numbers add up. But I am not sure my explanation is satisfactory!

SNOOPY

Snoopy

23-06-2012, 04:18 PM

Also you reminded me to check to see if they had fixed the error. Nope, the CEO statement states:

"Group non-trading charges of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.5 million), Pizza Hut and Starbucks Coffee store closure costs (mainly ﬁxed asset write offs) of $0.6 million and KFC transformation write offs of $0.2 million."

Based on RBD's account it should have read:

"Group non-trading charges from continuing operations of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.3 million), Pizza Hut and Starbucks Coffee store closure costs (mainly ﬁxed asset write offs) of $0.6 million and other non-trading charges of $0.4 million."

If I look on page 47 of the annual report we can calculate the pro-rata write off of goodwill as follows:

$15.445m-$13.927m= $1.498m (agrees with CEO statement)

But total Pizza Hut non trading costs are $1.903m (p40)

That implies the mainly fixed asset write offs at PH are $1.903m-$1.498m= $0.405m

Other non trading losses for Starbucks, which hasn't had any goodwill written off, are listed as $0.251m (p40)

So 'Pizza Hut and Starbucks Coffee store closure costs' (mainly ﬁxed asset write offs) can be estimated as:
$0.405m+ $0.251m= $0.656m (agrees with CEO statement)

The KFC transformation write-off is unlikely to be $0.2 million... total KFC non-trading items were $0.1 million. Yes the differences are small, but it's the CEO statement, it should be correct.

Page 40 lists other non trading losses at KFC to be $0.097m. It is impossible for any subset of expenses to be greater than this. In this instance Starman's criticism of the CEO statement looks justified.

SNOOPY

buns

24-06-2012, 04:04 PM

I never could figure out why year after year the PH goodwill was valued in RBD accounts using forecast sales and profit margins. Year after year PH failed to achieve their sales targets and profit margins. Yet year after year that goodwill was largely untouched for value in the RBD annual accounts. (I say largely untouched because the more recent sell down of certain Pizza Hut store to private owners has forced RBD to crystallize the latent losses relating to the 'fictional goodwill' on those particular stores).
SNOOPY

Forecasts are the only way to do this. As the value in use calculation/DCF needs to consider all future (forecasted) cash flows from this asset and determine whether the value of these exceed its current carrying value (or carrying value of the cash generating unit).

The auditors will review the assumptions of the forecast when they do the annual test for impairment. However as any who has touched a DCF would know, it isn't hard to validate a piece of rubbish using those calculations. Especially when the underlying discount rate is built on some subjective measures (Risk Beta, Market risk premium etc etc). Auditors knowledge of the business is always too weak to challenge these assumptions, hence goodwill/assets stay overvalued for far longer than they should. (Big reason behind the spark of collapses in USA in the GFC around debt measurement).

I haven't read to much about it, but the talk around changing the accounting for leases will impact your RBD types bigtime. I'm assuming the bulk of RBD's leases are operating/on the P&L. If you move these onto the balance sheet these companies are turned upside down. Expect companies with iffy goodwill to hold back write offs until big changes like this, so they can sneak them through in the wash of much larger changes.

Snoopy

25-06-2012, 04:14 PM

I haven't read to much about it, but the talk around changing the accounting for leases will impact your RBD types bigtime. I'm assuming the bulk of RBD's leases are operating/on the P&L. If you move these onto the balance sheet these companies are turned upside down. Expect companies with iffy goodwill to hold back write offs until big changes like this, so they can sneak them through in the wash of much larger changes.

You are correct Buns, all the RBD property leases pass through the profit and loss accounts. If the lease financial commitments are forced onto the balance sheet then RBD will appear at lot more indebted than it is now. However from a cashflow perspective nothing will change, so perhaps if this new law goes through, the impact on the likes of RBD will not be a great as you think?

For those of us with long memories RBD has been here before. RBD used to own outright most of their business premises (all the stand alone KFCs anyway). They cashed them up and used to money to embark on what turned out to be a loss making expansion into Pizza Hut Victoria.

At the time the KFCs were sold, we were told that the extra rent that needed to be paid would almost exactly be offset by the savings in depreciation charges. Of course the depreciation rules have since changed. Building owners are no longer able to claim depreciation, but store operators are still able to claim lease costs as a cost of doing business. Does that mean that technically RBD is now underlyingly more profitable, because of the decision to sell those RBD stores all those years ago?

Perhaps all the new proposed law is doing is to even things up again so there is little difference in profit whether you own or lease the stores you conduct your business from?

SNOOPY

Snoopy

25-06-2012, 04:22 PM

I have a massive problem with how RBD management presents the RBD accounts. They present "Concept EBITDA" as if it's EBITDA. It's farcical, and does not help current or potential investors to make informed decisions.

I think that with the exceptional result of last year clouding our memory, shareholders forget that RBD management have a history of being very average.

An alternative valuation technique I have been looking at for such companies is to consider dividend payments (excluding special dividends) over a five year period, effectively a retail business cycle. The dividend performance of RBD over the last 5 years is as follows:

FY2012: 6.0c, 9.5c
FY2011: 7.0c, 10.0c
FY2010: 4.5c, 8.0c
FY2009: 3.0c, 4.0c
FY2008: 3.0c, 3.5c

That averages out to 11.7cps or 16.7cps gross.

If you regard an over the cycle yield of 8% gross being about right, this translates to a fair value of RBD shares of $2.09

SNOOPY

25-06-2012, 05:02 PM

If you regard an over the cycle yield of 8% gross being about right, this translates to a fair value of RBD shares of $2.09Would you class the recession as part of the normal 5 year retail cycle (ie. we had a deeper low than normal)? Add in Chch as being a 1 in 50 year event, not a 1 in 5 year.

Adjusting for those, the average cps would have been higher which means the price should be higher.

Snoopy

26-06-2012, 03:34 PM

Would you class the recession as part of the normal 5 year retail cycle (ie. we had a deeper low than normal)? Add in Chch as being a 1 in 50 year event, not a 1 in 5 year.

Adjusting for those, the average cps would have been higher which means the price should be higher.

Of course you are right CJ. A simple 5 year average dividend valuation method cannot possibly capture the factors you have brought to our attention. It is at best a broad brush valuation which you have to 'tweak' along the lines you have mentioned.

We all know that shares do go up and down through the business cycle as well. That $2.09 for RBD is a business cycle average. Around half the time we can expect the actual share price to be below average value and the rest of the time above it, all dependent on what micro news is pushing the share price around at the time. Your points are well made and I guess the 'counter opinions' to your argument go something like this.

1/ 'The Recession' has rather benefited RBD so far. The explanation for this is that while people may have to tightened their belts and reign in or put off those big purchases, they are likely to continue spending on 'little treats': like a meal or a cup of coffee out. As far as RBD goes the longer the recession goes on and the deeper it goes (within reason) the better.

2/ The treatment of the lost Christchurch stores is interesting. RBD has lost 3 Starbucks stores in the city centre, but reading between the lines those stores are still included in the current number of 35 on the books. Insurance claims are in and some of the money has been paid out. But there is no separate entry for insurance payments in either the income or cashflow statement.

Does this mean RBD have mixed their insurance payments up with their regular income? I fear it does! Might be a good question for someone to ask at the AGM on Friday. I am not sure if any negative effects of the Christchurch earthquake have made their way into the accounts at all yet!

SNOOPY

20-08-2012, 03:23 PM

Any thoughts on why RBD has been moving up.Bought back in a few mths ago for the div yield and am a little surprised at its uptrend.
KJ

Snoopy

20-08-2012, 03:39 PM

Any thoughts on why RBD has been moving up.Bought back in a few mths ago for the div yield and am a little surprised at its uptrend.
KJ

IMO KJ, RBD has just been moving up with the market in general. No real company specific reason for the uptick.

SNOOPY

20-08-2012, 04:00 PM

IMO KJ, RBD has just been moving up with the market in general. No real company specific reason for the uptick.

SNOOPY

Thanks Snoopy-I think that's probably it.

Snoopy

21-09-2012, 01:21 PM

Any thoughts on why RBD has been moving up. Bought back in a few months ago for the div yield and am a little surprised at its uptrend.

The second quarter sales announcement came and the share price did not move. Commentators would say the market has anticipated everything.

Same store sales up 3.7% for the quarter sounds really good. Dig deeper and same store KFC same store sales only rose by 0.7%.

Starbucks same store sales down 4% was a bit of a shock, and if that is representative it looks like last years boost in profits from this division may have been reversed. Interesting that CEO Creedy said that some users were finding Starbucks a bit pricy and new lower cost menu items were being introduced. I have to admit I have thought this myself for a while, and one 'l' Russel might be on the pulse here.

The main gain then is down to Pizza Hut, with same store sales up an astonishing 26.5%. All achieved through discounting though. We have all seen those dairy owners with any smarts restocking their dairies by grabbing the Pak n Save below cost specials, rather than go through conventional wholesale channels. The next stage has to be ordering a swag of the Pizza Hut specials, scraping off the cheese to resell as reconstituted globs, and repackaging the ham toppings to sell as bargain bacon. The pizza crust itself is chopped down into naan breads. At $4.90 for a large Pizza, it has to be looking economic.

SNOOPY

21-09-2012, 03:58 PM

HY result probably flat I would say.Mgt were supposed to make some comment on how profit was tracking when they announced 2nd quarter sales but they have not done so.
KJ

winner69

19-10-2012, 04:27 PM

20-10-2012, 09:11 AM

Yes..it has gone well.

HY result will be interesting...should be out next week I think.Perhaps high div has helped to push price up.

winner69

11-01-2013, 12:27 PM

I think just over 280 is the all time high

Getting up to that mark again ..... 250 odd now .......260 next week or so .....and then an all time high

Not going to bad is this dog .....almost a greyhound

That was a couple of months ago

All time high comes and nobody says a word ....a bit boring is RBD isn't it

winner69

11-01-2013, 12:31 PM

Maybe 3 bucks by end of month .....bongo would be pleased

Snoopy

11-01-2013, 04:15 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

Winner, your prediction in post 1532 from July 2010 is coming true. And those market gurus thought they knew more than you do! Just as well the share price weakened between your post and now to enable you to climb on board....

SNOOPY

amalgam

12-01-2013, 09:30 AM

I bought RBD some years ago--at that time my broker at Forsyth called it a dog, so I bought thru Direct B. Over the years it has kept on performing with a high yield & a steady increase in value--look at it this year- a great overall return [& its the overall return thats imp twith shares like RBD].I like to think that with a number of shares like this as the backbone of my portfolio, I can safely play with a few small cap shares, with the hope of a few multi baggers.

winner69

14-01-2013, 07:46 PM

jeez .... but not a surprise .... an all time high close of 293

guy from milford was on the radio earlier tonight and said the market beginning to see the potential that carls has .... may have been just saying that because he had to say something different eh

interst rates are a bit lower than when i suggested that 3 bucks eh snoopy ... maybe 4 bucks is a better figure now

modandm

15-01-2013, 08:26 AM

Blendy

15-01-2013, 08:54 AM

carls is going to take at least 3-5 years to make a difference while KFC is going nowhere and Pizza hut is shrinking.

Yes this is how i feel too, and i sold 3/4 the other day at a lovely profit.

winner69

01-03-2013, 07:03 AM

On the radio today Russell m said cals is going to be as big as KFC

WOW

iceman

01-03-2013, 07:11 AM

On the radio today Russell m said cals is going to be as big as KFC

WOW

Hope it doesn't mean Carl's will take half the business of KFC, leaving them same size !

01-03-2013, 07:59 AM

On the radio today Russell m said cals is going to be as big as KFC

WOW
Article in the Hearld said Carl's had a one week record of $180k. By comparison, my guess is BurgerFuel record would be in the $60k range with their top stores averaging in the high $30k per week. Not sure what McD/BK would do.

Pizzas is a race to the bottom. Have heard Dominos wants to increase/put in tables to increase their average order total. Not sure if that is what people want for pizzas.

In general, I see Carl's as a positive for RBD (not NZ and our obesity rates though).

disc: hold

BIRMANBOY

01-03-2013, 08:10 AM

Loved the quote from the company rep...."we are not the obesity police". What else could he say. Food looked good..ooh chile fries. It gives the dieticians and food analysts something to complain about..good advertising. Nothing quite so appealing as the "highest fat content burger" to pull in the punters. Wish they had one in Wellington..BK and MAc need some competition. Disclaimer 85 kg and holding an extra uneccessary 8kg but working on it. Still like an occasional FF treat though. Holding this long term and will continue to add in the dips (and relishes)
Article in the Hearld said Carl's had a one week record of $180k. By comparison, my guess is BurgerFuel record would be in the $60k range with their top stores averaging in the high $30k per week. Not sure what McD/BK would do.

Pizzas is a race to the bottom. Have heard Dominos wants to increase/put in tables to increase their average order total. Not sure if that is what people want for pizzas.

In general, I see Carl's as a positive for RBD (not NZ and our obesity rates though).

disc: hold

winner69

11-04-2013, 04:45 PM

Going to see the eye specialist tomorrow ..... eyes playing up badly they really are .... like I think I saw a 3 in front of the RBD share price .... yes a 3 .... bloody eyes ... and I wasn't dreaming either

BIRMANBOY

11-04-2013, 05:29 PM

Ha HA..yes and more buyers than sellers. Highest its been in 5 years. Fast food, fast service...all. we need now is for RB to bring in Taco Bell and we have it sown up
Going to see the eye specialist tomorrow ..... eyes playing up badly they really are .... like I think I saw a 3 in front of the RBD share price .... yes a 3 .... bloody eyes ... and I wasn't dreaming either

winner69

11-04-2013, 05:59 PM

Ha HA..yes and more buyers than sellers. Highest its been in 5 years. Fast food, fast service...all. we need now is for RB to bring in Taco Bell and we have it sown up

Come on Birman ....don't be shy .....HIGHEST PRICE EVER .....ALL TIME HIGH

h2so4

13-04-2013, 08:02 PM

winner69

21-04-2013, 09:33 AM

Balance

21-04-2013, 09:49 AM

The paper today says its a done deal ( or a near certainty) that RBD to take over the Aussie KFC franchise. The current franchisee is not in Yums good books

Hope they held out for a good deal as helping settle a dispute

RBD with a 4 in front of the share price ...bring it on

Shudder.

The last time RBD went over to rescue Pizza Hut (another Yummy special), RBD came back with a bloody nose and after bleeding millions upon millions.

winner69

21-04-2013, 09:53 AM

Only read the BIG HEADLINES

Only West Australia and Northern Territories, 40 stores

Current operator also deeply involved in Domino Pizza and Yum pissed off with that

Calls to RBD were not returned

Prob a figurement of some reporters imagination .....but could be tied in with direct flights to Perth from Chch commencing soon

winner69

21-04-2013, 09:55 AM

Shudder.

The last time RBD went over to rescue Pizza Hut (another Yummy special), RBD came back with a bloody nose and after bleeding millions upon millions.

But this time it 'will be different' - we learnt from our experiences and all that stuff

Balance

21-04-2013, 10:04 AM

But this time it 'will be different' - we learnt from our experiences and all that stuff

Indeed.

Just like Hugh Fletcher learning from the near death experience of Fletcher Challenge in 1992/93 to load FCL up with debt again in late 1990s to experience the real death of Fletcher Challenge group.

One thing about NZ management - they all think they are smarter than the last lot.

winner69

21-04-2013, 10:15 AM

Indeed.

Just like Hugh Fletcher learning from the near death experience of Fletcher Challenge in 1992/93 to load FCL up with debt again in late 1990s to experience the real death of Fletcher Challenge group.

One thing about NZ management - they all think they are smarter than the last lot.

Isn't that how they got the job - by being smarter? (Following daddy doesn't count)

Nice one bal

percy

21-04-2013, 11:24 AM

It is a problem with franchises.West Australian was a very good business.YUM pulled the plug on it because he brought a 25% holding in Dominoes.
Makes it hard to sell when you don't have a "licence".Goodwills,lease commitments ,valuations all go out the door.
The worst one I read about was Gough and Gilmour losing the Catipillar New South Wales franchise.Catipillar write in all agreements that the frachise can end with them giving 6months notice "without reason."
One would cry "fowl".!!!

winner69

22-04-2013, 01:22 PM

Good story while it lasted ... reminded us of the history of NZ companies going into Australia and stuffing it up and how 'this time is different' is really a fallacy .... and somehow even Hugh Fletcher got in on the act

Well - it do fill up a bit of the Sunday paper short of news

bull....

29-05-2013, 01:03 PM

Looks like those carl jnr stores are going well ,
you would think with mc donalds and burger king , wendys sales etc running in the hundreds of millions carl jnr should do very well

gv1

29-05-2013, 01:13 PM

Looks like those carl jnr stores are going well , you would think with mc donalds and burger king , wendys sales etc running in the hundreds of millions carl jnr should do very well I would not eat them next time, so does my kids. Very greasy..yuck. I mean CJ.

BIRMANBOY

29-05-2013, 05:47 PM

Thats not grease its "high calorie content tasty juice"!!.. That should be very appealing to the fast food afficianados.
I would not eat them next time, so does my kids. Very greasy..yuck. I mean CJ.

gv1

30-05-2013, 09:01 AM

Thats not grease its "high calorie content tasty juice"!!.. That should be very appealing to the fast food afficianados.

Love Wendys, Mac, KFC etc but not CJ thanks.

30-05-2013, 09:23 AM

Love Wendys, Mac, KFC etc but not CJ thanks.I wont take that personally ;)

Still haven't tried CJ, more of a BurgerFuel fan - they actually seem healthy - from what I can tell with CJ, they put far to much sugary sauce on a pattie high in saturated fat.

HOwever, for there target market, I rate CJ a buy. Just look at those turn over figures! $2.3m over 3 months from 3 stores - $63k per week. BurgerFuel would probably average in the mid $30k (though they would have smaller, cheaper shops)

gv1

30-05-2013, 09:32 AM

I wont take that personally ;)

Still haven't tried CJ, more of a BurgerFuel fan - they actually seem healthy - from what I can tell with CJ, they put far to much sugary sauce on a pattie high in saturated fat.

HOwever, for there target market, I rate CJ a buy. Just look at those turn over figures! $2.3m over 3 months from 3 stores - $63k per week. BurgerFuel would probably average in the mid $30k (though they would have smaller, cheaper shops)

HA!HA!HA!........definitely not you CJ. The other greasy food co.

Snoopy

10-06-2013, 03:41 PM

Looks like those carl jnr stores are going well ,
you would think with mc donalds and burger king , wendys sales etc running in the hundreds of millions carl jnr should do very well

Yes $100k per week per store revenue compares very well to KFC. From the 2013 AR, weekly KFC takings averaged over 89 KFC stores are:

$237.03m/(89 x52) =$51.2k per week.

So even if Carl Juniors drop back to half the turnover they are doing now, long term they could match KFC in the long term business plan. I think RBD just turned from an 'income' share into a 'growth' share!

SNOOPY

BIRMANBOY

10-06-2013, 03:45 PM

Tell me it aint so....! I am morally at odds with "growth shares" so may have to consider sellling:eek2:
Yes $100k per week per store revenue compares very well to KFC. From the 2013 AR, weekly KFC takings averaged over 89 KFC stores are:

$237.03m/(89 x52) =$51.2k per week.

So even if Carl Juniors drop back to half the turnover they are doing now, long term they could match KFC in the long term business plan. I think RBD just turned from an 'income' share into a 'growth' share!

SNOOPY

Snoopy

10-06-2013, 03:49 PM

carls is going to take at least 3-5 years to make a difference while KFC is going nowhere and Pizza hut is shrinking.

The rerating that has occurred in the last 12 on this stock makes it too expensive and with its poor track record and management its not something I would invest in at these levels.

I agree that Carl Jr. will not be profitable for a few years. Management talk about losing $0.5m this year, but that doesn't include unallocated head office support costs. By my reckoning Carl Jr actually lost $1m this year, and I don't see it turning a profit in FY2014 either. However I am not too worried as that is what you would expect with establishing a new brand. I do believe that in 4-5 years that RBD share price will start with a '4' thanks to Carl Jr.

Pizza Hut OTOH may be shrinking. But because it is loss making this means the losses are shrinking. Perversely this is where the RBD (profit) growth is coming from in the near future.

SNOOPY

Snoopy

10-06-2013, 04:52 PM

Not sure anyone has specifically commented on this, although it was out a month or so ago.

I have a somewhat different way of looking at this as I set of a spreadsheet to give me divisional after tax results. The main findings when I do that is that Carl Jr's lost $1m (expected in the start up stage).

KFC after tax profit was down by $1m.

Starbucks profit after tax after head office allocated costs has disappeared to nothing (although it was only $0.5m last year)

And if you normalize the ongoing goodwill write offs on the same basis as used to occur before 2006 (as I do) then Pizza Hut lost $4.7m. That sounds bad until you realize that using the same method PH lost $7m last year! Clearly there are still problems with PH.

SNOOPY

bull....

10-06-2013, 05:54 PM

Pizza hut lost the plot , let dominos steal huge market share with therre promos while they did nothing although now they are engaging dominos on matching promos and can see the results coming thru.
I see big potential in carl jnrs as they have a good product and its different to others , long as they follow say mc donalds model of pushing the burgers out quickly in both drive thru and counter and not the the kfc model which seems to be slower in counter service favouring drive thru first.
Maybe extra sales for kfc if they speed up counter service might get more people going in who might make subsequent purchases instead of just thru drive thru

bull....

11-06-2013, 10:01 AM

mc donalds sales up 2.5% worldwide , competitors continuing to copy there model

http://www.reuters.com/article/2013/06/10/us-mcdonalds-sales-idUSBRE9590GZ20130610?feedType=RSS&feedName=businessNews&rpc=408

Snoopy

11-06-2013, 02:45 PM

Pizza hut lost the plot , let dominos steal huge market share with their promos while they did nothing although now they are engaging dominos on matching promos and can see the results coming thru.

Here is a question for the accountants on this forum. If Pizza Hut goodwill in the books is accurately valued, why was it necessary to write off $3.192m of goodwill disposed of as a result of selling off PH stores to owner operators during the year?

Does this not mean that the actual price received for those PH stores on a willing buyer, willing seller basis, meant that it was not possible to sell those stores with the value of that goodwill included? IOW, that $3.192m of goodwill on the books connected with those PH outlets being sold was really a figment of RBD management's imagination?

SNOOPY

11-06-2013, 02:59 PM

bull....

11-06-2013, 06:29 PM

Snoopy - did the goodwill right off relate to just the sold stores or is that they sold slight under carrying value so they revalued all the stores downwards (via goodwill right off).

I would be questioning their annual impairment reviews (and the auditors review of the review) if they were that much out on just the sold stores. Remind me how many they sold again?

yes i believe its relates to the sold stores only 8 looks like carrying value of the goodwill was 13 mil on those stores but they got 10 back thru sale so actual loss was your 3 mil.
there assumptions on valuations seem sound to me obviously auditors too

Snow Leopard

12-06-2013, 12:06 AM

Here is a question for the accountants on this forum. If Pizza Hut goodwill in the books is accurately valued, why was it necessary to write off $3.192m of goodwill disposed of as a result of selling off PH stores to owner operators during the year?

Does this not mean that the actual price received for those PH stores on a willing buyer, willing seller basis, meant that it was not possible to sell those stores with the value of that goodwill included? IOW, that $3.192m of goodwill on the books connected with those PH outlets being sold was really a figment of RBD management's imagination?

SNOOPY

So Note 5 says they made a loss of $1M664 selling stores with $3M192 of booked goodwill attached. (Note 8 suggests originally about $13M but written down over prior years).

The entire amount was not 'written-off' but as a result of the sales the amount of goodwill owned by the company decreased.

The buyers paid more than $2M484 for PP&E valued by RBD at $958K so the buyers were willing to pay at least $1M5 for goodwill which appears as cold-hard cash.

Other than that all I will say is:
that I have never liked RBD as an investment;
this years annual report is a lot better than the 3D (glasses supplied, but not with the e-copy) version for 2012.

Best Wishes
Paper Tiger