RBD - Restaurant Brands

[Snoopy]

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]

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

[CJ]

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

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.

[Snoopy]

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

[KJ]

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]

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

[KJ]

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]

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

[KJ]

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]

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