RBD - Restaurant Brands

[Snoopy]

I have dived back another year in the records to FY2012 where eight Pizza Hut stores were sold to owner operators.

If you go to the intangible asset page in the annual report (AR2013 p47), management outline conditions that allow the goodwill in the books to be retained at today's values. These assumptions include predicted future cashflows and EBITDA margins.

In the annual report 2012, RBD were looking for a 2% sales growth per annum over 2013-2015

Actual sales for PH FY2012 were $45.477m, and actual sales FY2013 were $47.876m which represents a sales growth of 5.3% (very good).

EBITDA margin was forecast to be 7.0-10.0%.

Actual EBITDA margin for FY2013 was:

$3.296m / $47.876m = 6.9% (Not so good)

Clearly sales were above expectations and margins a touch lower. I guess that is why there was no general write off of goodwill for FY2013 required, at least in management's eyes.

Looking forward however is where things get interesting. PH Cashflows are forecast to rise another 4-6% per year on top of the turnaround year we have just had. And EBITDA margins are forecast to increase to 8.1-8.6% as a proportion of sales.

Now I would be the first to congratulate Pizza Hut on their turnaround performance over FY2013. But to mirror that 5% sales performance again over the next two years, while this time increasing margins from 6.9% to 8% plus is I think a stretch target. This provides more evidence to me that the Pizza Hut goodwill on the RBD books is still overvalued.

SNOOPY

[Snoopy]

Thanks Snoopy.

What's your current view on the current price. I know you are a long time holder but do you consider it under/over/fairly valued?

If I reprise my dividend valuation technique I 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:

FY2013: 6.0c, 9.5c
FY2012: 6.0c, 9.5c
FY2011: 7.0c, 10.0c
FY2010: 4.5c, 8.0c
FY2009: 3.0c, 4.0c

That averages out to 13.5cps or 19.3cps 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 $2.41

Of course you have to understand the crudeness of what is a fairly simple mathematical model. Implied within this is a slight trimming of the dividend going forwards (on average). And of course zero value has been applied to Carl Juniors.

At $2.83 I would agree that RBD is no longer outstanding value. But in 3-4 years Carl Juniors could easily bridge my 'value gap'. As a result I intend to hold onto all my RBD shares going forwards.

SNOOPY

[CJ]

Thanks Snoppy

Confirms my own assessment, with Carl Jr being the wild card. It will do well in some demographics but seems over the top for others - still to try myself.

[CJ]

Another persons veiw:

In a reversal of 2007, last week two private equity firms asked me how the equity market could place such a high value on a business such as Restaurant Brands. Restaurant Brands is a very well-managed company but its core business exhibits little growth (although it does have a new offering, Carl's Jr, which is likely to go well). My private equity colleagues would place a value of about 5 times ebit on Restaurant Brands after adjusting for Carl's Jr - the equity market is currently valuing this business at close to 10 times, presumably on the basis of its high dividend yield.

It looks like he got it right in the last nine words of the paragraph. However, with the recent increase in price, that yield has reduced.

http://www.nzherald.co.nz/business/n...ectid=10890960 Sparky has already commented on the Ryman comments in the article on the RYM thread.

[bull....]

reuters data im looking at shows current market pe 18 , next yr 15.9
ryman pe next yr 26 , yr2 = 22 div yield 1.91 , 2.2
rest brands pe next yr 14 , yr2 = 12 div yield 5.97 , 6.4

obviously ryman is priced as more of a growth stock than resturant brands and resturant brands as a div stock , but then again resturant brands looks better value on a pe basis compared to both the market and ryman so perhaps more upside in rest brands than ryman?

[CJ]

reuters data im looking at shows current market pe 18 , next yr 15.9
ryman pe next yr 26 , yr2 = 22 div yield 1.91 , 2.2
rest brands pe next yr 14 , yr2 = 12 div yield 5.97 , 6.4

obviously ryman is priced as more of a growth stock than restaurant brands and restaurant brands as a div stock , but then again restaurant brands looks better value on a pe basis compared to both the market and ryman so perhaps more upside in rest brands than ryman?

RYM is growing at 15%+ per year.

Pizza Hut is well ...
Starbucks is well....
KFC has been going OK but that is after a big refit program so I'd only expect a few % growth per year there. Carl Jr is the wildcard - I haven't sampled yet but do Kiwis really want, from what I have heard, overly fatty burgers with overly sugary sauce - hopefully not. Still 6% yield is better than the bank and Carl Jrs will do really well in some areas.

[bull....]

Was in KFC other day carpark was pretty full and the que was nearly back to the door. ( havnt really seen this before )
raised some i brows until got inside and see they have $5 lunchbox and their 1,2,3 $ ( isnt this a georgie pie thing they did?) specials so i see they have moved to match all these dominos, mcdonald similar specials smart move as they dont want a pizza hut experience happening with kfc.
Although i note now a much more sharper pizza hut website with a good promo offering , things might be on the up.

[bull....]

nice annual meeting commentary today by the chairman forecasting steady to slightly higher results , also note milford increased their holding in the growth fund for rbd fits in with my targets in that if you take a 2 - 3yr view its cheap.
carl jr 173000 one week wow imagine if you had 80 stores at a % of this and you get the drift of the potential upside

[winner69]

nice annual meeting commentary today by the chairman forecasting steady to slightly higher results , also note milford increased their holding in the growth fund for rbd fits in with my targets in that if you take a 2 - 3yr view its cheap.
carl jr 173000 one week wow imagine if you had 80 stores at a % of this and you get the drift of the potential upside

$173,000 per week is $9m a year

80 stores of this size 3/4 billion -- WOW

Just imagining

[artemis]

Quite a lot of questions at the meeting about CJ. Mostly from one shareholder. Chairman said that the Hamilton CJ was tracking at almost the same take as opening. There was a mention of 2% slowdown after opening but I was not very clear what that referred to or what time frame. Bull, did you get that? CJ opening week in Mangere was 2nd highest opening week world wide. Bit sad really. RBD are looking to CJ as a 2nd big engine over time (KFC being the big one).

Big takeup of $4.90 pizzas and $5 KFC lunch boxes were big helps to bottom line.

Non question of the day from the floor - video clips too loud. I kid you not.

Several kids present as well. Don't see that very often. KFC and pizza might have helped.

A couple at the top table looked bored and fidgetty. You'd think they could pretend to be interested for an hour or so once a year.