RBD - Restaurant Brands

[bull....]

poor old collins food in aus ( kfc) has been savaged by the announcement that all its stores in denmark have to close due to the virus

[Snoopy]

poor old collins food in aus ( kfc) has been savaged by the announcement that all its stores in denmark have to close due to the virus

From a recent high in December 2019 of $10.50 for Collins Foods (CKF), and trading at $4.60 as I write this. A fall of 56%. Ouch!

Mind you, RBD touched $14 in January and is now trading at $8.20. A fall of 41%. Not that much better. Frankly I think the RBD share price deserved to fall from what I saw as ridiculous multiples. But the only silver lining here is that it makes me feel a little better about quitting most of my holding at $9.50 in the partial takeover! Hopefully none of RBD's restaurants will 'do a Denmark'. But even if they do, the KFCs all have 'drive throughs' and more and more stores are doing home deliveries. So I am reasonably comfortable with my residual RBD holding.

SNOOPY

[Ecks]

RBD looks to be a buy, Additional Taco Bell stores planned for NZ and AU and KFC deliveries in NZ for Q3 post Covid19 scare could be a potential launching platform. Watch Q2 closely to time a buy as I don't see it falling in Q3 onwards.

[Ecks]

RBD looks to be a buy, Additional Taco Bell stores planned for NZ and AU and KFC deliveries in NZ for Q3 post Covid19 scare could be a potential launching platform. Watch Q2 closely to time a buy as I don't see it falling in Q3 onwards.

SP getting close to pre-Covid!

[kiwidollabill]

SP getting close to pre-Covid!

I really dont get this, surely their quarterly earnings is going to be shot?

[Airw0lf]

I really dont get this, surely their quarterly earnings is going to be shot?

Yeah I have no idea - I got out a couple weeks ago and now look foolish on paper.

Maybe the market is looking past what could be a relatively short lockdown and is also happy that competitor BK is dying.

[nztx]

I really dont get this, surely their quarterly earnings is going to be shot?

Neither do I .. looked when RBD was lower but again fast retracing back upwards..

What are investors buying with a chop of the minority action on this one ?

[Timesurfer]

Some free advertising for RBD

[blackcap]

I really dont get this, surely their quarterly earnings is going to be shot?

Their quarterly earnings will be. But beyond that, there is likely to be little downside going forward. If you do a DCF analysis and with the discount rate now being lower (almost zero) the impact of this quarter will pretty well be negated. But the risk going forward is that sales do not return to prior levels as distancing and other laws will make it harder for their restaurants to open as before. But I am sure that technology will probably get around that problem.
To be fair though I thought they were a bit pricy just on the metrics pre-covid, so will probably not be buying at these levels.

[Snoopy]

If you do a DCF analysis and with the discount rate now being lower (almost zero) the impact of this quarter will pretty well be negated.

When deriving a 'discount rate', it is common for analysts to use something called the 'Capital Asset Pricing Model'. This uses input figures based on the general economic environment and specific factors related to the particular share you wish to analyse. One such factor is historical 'specific share price volatility' verses 'overall market volatility'. Personally I do not use this method. I prefer to assign an 'industry sector group volatility' figure regardless of any share specific historical volatility.

I tend to use a lower discount factor for any share which supplies basic human needs, like utilities and food companies. One potential flaw in my method has been highlighted by you below blackcap.

But the risk going forward is that sales do not return to prior levels as distancing and other laws will make it harder for their restaurants to open as before. But I am sure that technology will probably get around that problem.

If the business model changes, it could me that my 'assigned discount value' to a particular sector is no longer appropriate. But you can say the same thing about the CAPM, where the input factor of 'historical share price volatility' is likely to be largely unrepresentative in the future too.

I have made a change in my method over the last year or so, lowering my 'industry discount factor' to take into account global interest rates that looked to be keeping lower for longer. The COVID-19 environment makes it likely that interest rates will be even lower for longer. The problem I have with adjusting my 'industry discount rate' again is that eventually discount rates get so low that summing the benefits of future profits can justify almost any share price. By all conventional measuring sticks, the price of RBD shares today is ridiculous, in my view. Yet the more this 'new normal' view on interest rates (and hence discount rates) prevails the more the price of RBD shares today seems 'reasonable'.

To be fair though I thought they were a bit pricy just on the metrics pre-covid, so will probably not be buying at these levels.

I absolutely agree. The longer these super low interest rates continue I can see the seeds being sown of the next market disaster. This being a tiny rise in interest rates from say a risk free rate of 0.5% to just 1% that could see the market fall by 50%. For this reason I cannot bring myself to buy any new shares based on the premise of super low discount rates, RBD included. Yet I can't bring myself to sell my residual RBD post takeover holding, even though I know it is too highly priced. Irrational? Probably yes.

SNOOPY