RBD - Restaurant Brands

[leanmeanfightingmachine]

ok here it is.

KFC -makes money- good margins.
Pizza hut - no money- good margins, but brand is screwed. And is going down fast.
starbuck- losses money- terrible margins (winter is death).

In a nut shell pizza hut and starbucks drags the whole thing down.

In another nut shell KFC is the only person in it's market, so they do well. If broken off they would be a star. Pizza hut is in trouble...big trouble.

Seen it, worked on it, read real figures and they are screwed long term. Unless they do something amazing.

LMFM

quote:Originally posted by winner69

quote:Originally posted by kura


By the way, has anyone bothered (I havent) to analyse where profits come from by division (KFC,pizza,starbucks) ? As I wonder if they could sell KFC and concentrate on the divisions with growth potential ? Just a thought.

Problem with that a fair chunk of their profit (and thus divs) come from KFC ..... Starbucks prob run at a loss and PH make some (prob marginal although improving) profit

RBD are very very coy about disclosing any financials below their "concept ebitda" line .... and their is significant expenses below that that need to be apportioned between the concepts .... they are not keen to share anything either as i have tried

[Snoopy]

Please all rise for this session of the Sharechat internet court, Judge Mick 100 presiding.

The defendent, Snoopy, is here to answer the following question

"Before you decide to hold or buy more shares in a company whose shareprice is plumetting in value - eg, restarant brands
Ask your self this question:"

"Is there a possibility that my decision making process is being affected by 'escaslation of commitment'?"

"So how about it Snoopy? Are you suffering from escalation of commitment?"

---------

A fair question Judge Mick. Now please allow me to present my evidence.

I am a foundation shareholder of RBD. I acquired my first shares in June 1997 at an effective $2.03. In March 1998 I purchased some more at an equivalent price of $1.29. I have made several purchases in subsequent periods, priced as follows: September 1998 62c (equivalent), February 2000 $1.20 (equivalent) and another batch at $1.18 (equivalent). More purchases were made in September 2000 at $1.14, March 2002 at $2.08, July 2002 at $1.71, September 2003 at $1.25, September 2004 at $1.26, December 2004 at $1.26, March 2005 at $1.29, July 2005 at $1.60, October 2005 at $1.30 and finally later in that same month at $1.24. My weighted average purchase price is $1.26. My weighted average share holding time is 2.5 years. (That's because most of my holding has been bought in the last couple of years, during the time RBD has suffered from the most derision on this forum.)

Based on a market price of $1.33 I have made an average capital gain of 2.5cps per year held. The current net yield is 10cps, or 12.5cps if we add the annualised capital gain. That gives a gross yield annual return of 13.8%. Now, I'm not going to claim that is a fantastic return, although it is double what you would earn in the bank. But I do see that return as more than satisfactory, given the conservative nature of the underlying investment.

Some people see successful investment, in the cricket analogy, as a process of hitting as many sixes as you can. Personally I prefer a technique which gets less headlines but over the long term can be just as rewarding if not more so (because you are taking less risks). I refer to the 'pushing for singles' method. Just go about your job quietly clocking up the runs and keeping the scoreboard ticking over.

Being an investor in RBD won't score you many bonus swoons at cocktail parties. But it's a great investment to put your mother into. That's because my quoted returns are IMO, quite sustainable - even if the business doesn't grow at all! That's why RBD should be a core holding of any income based portfolio. For this whole century, RBD has had a consistent dividend income record that puts *all* the listed property trusts to shame.

As for the 'plummeting share price', there has been no long term plummet since 1998, since the inital fall from grace after the IPO. The share price today is more or less what it was in 1998. Since RBD have paid out nearly all of their profits as dividends since then, this is to be expected.

The case for investment, since 1998 has always been based on dividend yield. Investing in this company from a dividend perspective makes as much sense in 2006 as it did in 1998 and virtually every year in between. Therefore I reject the 'escalation of commitment' argument. If you look at 'new' investment in RBD in 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2006 it has made huge sense every year, for eight different annually discrete reasons.

RBD, highly profitable, highly reliable and proven as a sound investment for every year of this century. Judge Mick, I rest my case.

SNOOPY

discl: hold RBD, and very satisfied with the investment performance.

[duncan macgregor]

SNOOPY, I really fail to understand how you could buy a share at $2-03 in JUNE 1997 then average down and buy more at $1-29 nine months later. You actually followed that with a buy at 62cents all in a time frame of less than eighteen months. I have to take MICKS explanation of your investing as escalation of commitment as something to look out for. When i look back at the start of my share market investing i thought TA was for the loopies. I have almost turned full circle when i see the fundamentalists bleating on about how right they are as the share plummets. If bird flue ever gets going you will be back at your 62cents over night.
macdunk

[leanmeanfightingmachine]

yep i think there is alot of risk at where you are sitting.

share price hits anything less than 1.15 at your yearly caculations are screwed.

And you made zip. To much risk at where you are for me.

I did the same with PVO from 30 cents up. The thing is they are now paying divi's so the results are huge alog with gains, there are better stocks to work a simliar system on than RBD. Not saying you got to be punting everything and you need some stables.

God i am glad i got out when i did. You might have brought my shares. I got the profit and out for good. never going back unless they do something amazing.

LMFM

quote:Originally posted by duncan macgregor

SNOOPY, I really fail to understand how you could buy a share at $2-03 in JUNE 1997 then average down and buy more at $1-29 nine months later. You actually followed that with a buy at 62cents all in a time frame of less than eighteen months. I have to take MICKS explanation of your investing as escalation of commitment as something to look out for. When i look back at the start of my share market investing i thought TA was for the loopies. I have almost turned full circle when i see the fundamentalists bleating on about how right they are as the share plummets. If bird flue ever gets going you will be back at your 62cents over night.
macdunk

[Snoopy]

quote:Originally posted by duncan macgregor

SNOOPY, I really fail to understand how you could buy a share at $2-03 in JUNE 1997 then average down and buy more at $1-29 nine months later. You actually followed that with a buy at 62cents all in a time frame of less than eighteen months. I have to take MICKS explanation of your investing as 'escalation of commitment' as something to look out for.

I'll let you into a little secret Macdunk. Perhaps those three purchases you outlined were an 'escalation of commitment'. But don't tell anyone, will you

1998 seems almost 'last century' now. Back then I'd barely heard of Buffett and certainly never read any Buffett books. I can't remember exactly what I was thinking at the time. But I believe it was something along the lines of "if a share was worth $2 at float time, surely 18 months later it can't be worth as little as 62c!" Turned out I was right too, although all that did was cancel out my 'mistake' of buying in at $2 in the first place!

I guess I should go out and get a 'T-shirt' and get a slogan printed on it like:

"I averaged down and survived" or something.

quote:
If bird flue ever gets going you will be back at your 62cents over night.

We live on Moa's Ark Macdunk. And the birds that migrate here from the Northern hemisphere aren't ducks or swans. I wouldn't dismiss the bird flu problem, but I'm not going to lose much sleep over it either. Hey, the fact that the spelling police failed to intercept your message has just given me an idea for a riddle.

Q/ What's the cure for bird flu?
A/ Bird flue!

SNOOPY

[Mick100]

quote:Originally posted by Snoopy




RBD, highly profitable, highly reliable and proven as a sound investment for every year of this century. Judge Mick, I rest my case.






ce.

Judge mick summing up - all rise

Point 1
I don't think that 13.5 % pa is an acceptable return
there's a premium for inflation of 3% and add to that a risk premium which I would put at atleast 10% at the moment with bird flu out there. So that leaves you with a real rate of return of 0.5%

Point 2
Have you been to your local KFC recently - incdently the only part of restarant brands which is profitable ATM
I have not got the time to wait in line for half an hour before I get served anymore so I havn't visited KFC for quite a while
The strange thing was that even when there were only a few people to be served it still took half an hour because the staff behind the counter didn't know how to do there jobs. It appeared to me that the average period of time that someone would work at KFC was about 2-3 weeks.

Point 3
The food is crap
Chicken cooked in a preasure cooker full of fat - disgusting
Increasing numbers of people are becoming more health concious
The only people who still eat KFC are those who just don't care about their health - a minority
Have you noticed that establishments that sell relatively healthy food are doing a roaring trade these days, eg Subway

point 4
KFC outlets are located on prime realestate
Rents are going to keep going up even when sales are flat or falling
ie , KFC is going to get squeezed eventually
There number one product (fried chicken) is not going to gain market share against competitors - it's very likely to lose market share

conclusion
fried chicken is a dieing business
chickens are dieing http://xtramsn.co.nz/news/0,,11965-5439521,00.html
restarant brands are stuffed

and yes - I would recommend this share to my mother
Need I say more
,

[kura]

quote:Originally posted by Mick100


and yes - I would recommend this share to my mother
Need I say more
,

Mick, do you really hate your mother that much ??

[Lizard]

From sales data yesterday, it looks like FY profit will come in before write-downs at approx $10.4m. ie. underlying P/E about 12 at current price ($1.28). However, write-downs of Pizza Hut and commentary on margin squeeze will not help sentiment. Outlook for 2007 looks to me to be for a similar profit ($10.5m underlying). The hard call is on dividends...still possible they will cut to save cash for investment in KFC transformation. Or perhaps they will try to maintain for now and hope to use cash from sale of underperforming PH Aust outlets. 50:50 call - a dividend cut would certainly undermine the shares for a while.

I believe it would be risky to be in these shares at the moment, as there appear to be several negative threats to shareholder sentiment in the form of lower earnings, write-downs, mention of margin squeeze and a possible risk to dividends, with little short term upside likely (barring another takeover offer!).

[Snoopy]

quote:Originally posted by Lizard
From sales data yesterday, it looks like FY profit will come in before write-downs at approx $10.4m. ie. underlying P/E about 12 at current price ($1.28).

I believe it would be risky to be in these shares at the moment, as there appear to be several negative threats to shareholder sentiment in the form of lower earnings, write-downs, mention of margin squeeze and a possible risk to dividends, with little short term upside likely (barring another takeover offer!).

I guess that explains why the share price has risen by 5c since the announcement then?

quote:
Write-downs of Pizza Hut and commentary on margin squeeze will not help sentiment. Outlook for 2007 looks to me to be for a similar profit ($10.5m underlying).

The write downs on PH in Victoria have been signalled before and are hardly news. Margin squeeze has been an issue forever too, so no surprises there.

quote:
The hard call is on dividends...still possible they will cut to save cash for investment in KFC transformation. Or perhaps they will try to maintain for now and hope to use cash from sale of underperforming PH Aust outlets. 50:50 call - a dividend cut would certainly undermine the shares for a while.

I don't agree. If the dividend is cut so thet the yield reduces to 10% (down from 12%) do you think that income sensitive shareholders will sell their shares to put into a term deposit at say 8% so that they can reduce their income even further?

I should add of course that there has been no mention of any proposed dividend cut, except by you. There is no shortage of cashflow. There is no shortage of cash for the KFC transformation either - it is proceeding according to plan.

Now I should add that Restaurant Brands have their weaknesses, more than they should, as have been acknowledged by me on several occasions. But please, let's not draw up any further weaknesses that don't exist. RBD management have enough problems of their own making to deal with, without others making up stuff!

SNOOPY

discl: hold RBD. Now waiting for the annual takeover offer ;-P.

[Snoopy]

quote:Originally posted by bongo66

More than a hundred million more in sales than at the time of the original IPO. Twice as many stores.

Similar profits at 10M.

Yes, it seems profit has become an independent variable of turnover, to cast the problem in its most mathematical form!

quote:
Too many overheads: extra staff, rent, raw materials etc.

I've never been in a KFC or PH store and seen the staff mulling around doing nothing. I don't think you can say RBD employ too many staff at store level.

At management level then? I see there were 6 employees on a salary package of over $100,000 in 1997. By 2005 there were 25! Of course the comparison is not strictly fair as it doesn't allow for inflation. But even so, perhaps top management is top heavy? But of course you need highly paid good quality people to grow the business (the RBD line). Unfortunately paying mediocre people highly does not make them good quality people!

As for rent, my complaint is that perhaps the company is a little 'free spending' when it comes to the costs of relocating stores. I'm not convinced that when a store is moved and the remaining lease on the old premesis is 'written off' that enough attention is given to that written off cost. I get the impression that sometimes stores are moved 'whatever the cost'.

Went past the Coastlands Pizza Hutt dine in (just north of Wellington, at Paraparaumu) the other day and saw that it was being advertised for lease as 'the ex Pizza Hutt premesis'. PH had not moved out but the sign made the move look imminent. That is an iconic store that has been there forever IIRC. So it is interesting that it must be no longer viable.

quote:
Either IPO price was too high

Yes the IPO price was too high. But I couldn't even get a prospectus, such was the demand at float time. I sat in a broker's office for an hour inspecting a prospectus before I invested IIRC.

IMO you should not judge the worth of a company by comparing where it was floated 8 years ago to the share price today. By doing so you assume that the float price was set correctly. I wonder how the market perception of the company today would be different if it had been floated at say $1.30, instead of north of $2?

quote:
or management lack knowledge of the food business. The second is true of Salmond.

Is Salmond any worse than previous CEO Collier?

quote:
Other food groups; RBDs "parent" in the US, YUM, trades at multiples much higher than RBD because they are growing profit with sales.

Something aint right.

Not a fair comparison. YUM, being the master franchise holder, makes a lot of money from franchise fees. Those fees are paid whether the franchised individual restaurant is profitable or not.

YUM are also directly plugged into the fast growing Chinese market.

It is unrealistic to expect RBD to perform like YUM.

[quote]quote:
A unit is not covering costs in a business you cut it loose after a reasonable time.