RBD - Restaurant Brands

[BRICKS]

Snoopy your a big man to with stand every bit of rubbish thrown at you by them they would love you to SELL loose a lot of money and say "sorry" so we could all go home to tea and the company could float off to the NEVER,NEVER.. [8D]

[Halebop]

You don't have to sell something to lose money, you only need to buy it in the first place. The question is more complex than simply losing money as well. RBD has over time delivered negative returns, but even if the 10 year returns were +5.5% rather than -5.5%, cost of capital and opportunity would still make it a bona fide destroyer of capital.

[winner69]

Got it wrong

The only winners out of this have been YUM! , Starbucks Inc ..... and MR CHIPS

[duncan macgregor]

Down another 1.2% on $20 thousand turnover this morning to 85c.
Its surprising how some people could think that this is the best buy on the market at this moment in time. If it all hits the fan there will still be someone out there thinking its a buy. FA or TA systems are in agreement on this one, so who would buy today [?]. Macdunk

[Lizard]

I hadn't looked over the RBD figures for a while (since annoying Snoopy on page 3 of this thread by suggesting the dividend would need to be cut). However, my latest look was not encouraging. Some points I thought were of interest:

1. Pizza Hut EBITDA margin was at around 15% in 2003 - 2005 financial years, fell to 13.4% in 2006 but plunged to 6.4% in 2007. I'm not sure the extent of this plunge has been adequately explained to date. Also, to achieve their 2008 forecasts would seem likely to require some substantial reversal to at least 8% margin on Pizza Hut.

2. KFC increased its EBITDA by $1.6m, but depreciation for continuing operations increased by almost $2.0m. Does this mean that increased returns from the new KFC concept stores are being more than offset by increases in depreciation resulting from investment?

3. Debt grew by $16m and cash reduced by $1m during the last year. This was during a period where 12 stores were refurbished and $2.6m was spent on renewing franchises for 50% of KFC stores. This year, only 8 KFC stores will be refurbished, the other 50% of KFC franchises are being renewed and some (all?) or the Pizza Hut ones. Debt facilities of $70m have been negotiated to see them through the refurbishment process, with $50m now in use. At $1m per store and 60+ stores to go, it would seem that $40m will need to be found from cashflows to complete refurbishment. How long will it take to complete the process? Another 5 years seems possible/probable - that seems like some time before RBD is going to look like a cash generator.

Having said that, my current valuation is $1.27, so IF they stay on track for their full year forecast, there might be a medium term trade of up to 20%? At forecast of $9-10m underlying profit, that's a P/E of 8.3 - 9.2. But it doesn't look like a "buy and hold" to me at the moment.

[winner69]

quote:Originally posted by Lizard



At forecast of $9-10m underlying profit, that's a P/E of 8.3 - 9.2. But it doesn't look like a "buy and hold" to me at the moment.

Why use the underlying profit?

They say that some non trading items will be in the vicinity of $2 million after tax. But those non trading items look like things that were trading items not that long ago -- obviously been understating depreciation etc in the past if they now need to write a few things off.

And every year RBD seems to have some non trading items -- almost becoming the norm in my view and likely to continue into the future, esp as they continue to upgrade and transform things

[winner69]

quote:Originally posted by Scuffer

Someone is mopping up is it you Bling, or it could be Bricks I think he likes this stock.

I think its you scuffer mopping up today .... depriving bling of his 80 cent jobs

haven't heard from you for a week or so scuffer .... where are you

[Lizard]

quote:Originally posted by winner69

quote:Originally posted by Lizard



At forecast of $9-10m underlying profit, that's a P/E of 8.3 - 9.2. But it doesn't look like a "buy and hold" to me at the moment.

Why use the underlying profit?

I use the underlying profit because (wrongly or rightly) I think that will be important in determining sentiment. If their forecasts are correct, reported profits should improve in the coming year - particularly underlying profit. Improving profits usually result in improved share prices, even if the effect is temporary. The market will also be reassured if they are able to achieve forecast this year.

Based on available information and trends, I think analysts will tend to see a value discount and, at some point, the discount becomes worth the risk of buying into a "dog" stock. This seems to me to be more common with New Zealand analysts (perhaps because of the more limited pool of stocks they have to extract returns from). So that is why I see that there could be a medium term trade (e.g. 83cps, back to $1.03?). I doubt I will bother to test this theory though, since there are so many other safer stocks to play with.

The "value discount" might make Snoopy consider it a suitable long term hold, but the sensitivity analysis around that valuation, performance history and burden of KFC cashflow commitments makes the valuation high risk. Perhaps in 4 years time when the bulk of the KFC expenditure is completed, then a lower risk outlook will emerge.

[Bling_Bling]

quote:Originally posted by winner69

quote:Originally posted by Scuffer

Someone is mopping up is it you Bling, or it could be Bricks I think he likes this stock.

I think its you scuffer mopping up today .... depriving bling of his 80 cent jobs

haven't heard from you for a week or so scuffer .... where are you

Bling is waiting, doesnt look like too long before they hit 80 cents. Please sell down if you dont like the stock. Bling is ready for some bargains.

[Snoopy]

quote:Originally posted by Lizard


1. Pizza Hut EBITDA margin was at around 15% in 2003 - 2005 financial years, fell to 13.4% in 2006 but plunged to 6.4% in 2007. I'm not sure the extent of this plunge has been adequately explained to date. Also, to achieve their 2008 forecasts would seem likely to require some substantial reversal to at least 8% margin on Pizza Hut.

The fall is because of the 'Pizza Wars' being fought out between PH, Dominos and Hell Pizza. At the AGM we were told NZ has more pizza outlets per capita than Australia. Not the least of the problems is the high cost structure that PH has with their Red Hat restaurants. We were told some are losing money so simply closing them without the need for any gain in market share will help PHs position. I wouldn't call an EBITDA margin improvement from 6.4% to 8% too hard an ask either.

Today I notice the first sign that he pizza wars might be abating. Domino's single pizza coupon special is now $7.90. It was $6.90 last week. That is Christchurch of course. What are the loss leading pizza prices like in other parts of the country? Anyone?

quote:
2. KFC increased its EBITDA by $1.6m, but depreciation for continuing operations increased by almost $2.0m. Does this mean that increased returns from the new KFC concept stores are being more than offset by increases in depreciation resulting from investment?

The depreciation on KFC increased from $3.846m to $4.922m which is an increase of around $1.1m. My allocation of the interest bill ascribed to KFC went up by $700,000 (due to higher company borrowings) and amortization has gone up by $150,000. That adds up to $1.95m. Balance that against the increase in EBITDA of $1.6m and you can see you are correct Lizard. The refurbishment project, coupled with paying half the ten year renewal fee, has lead to a decrease in after tax profit for KFC for FY2007.

quote:
3. Debt grew by $16m and cash reduced by $1m during the last year. This was during a period where 12 stores were refurbished and $2.6m was spent on renewing franchises for 50% of KFC stores. This year, only 8 KFC stores will be refurbished, the other 50% of KFC franchises are being renewed and some (all?) or the Pizza Hut ones.

The number of Pizza Hut stores having their agreements renewed in FY2008 is not material. The big tranche for renewal is due in 2010 (the ex-Eagle Boys premises)

quote:
Debt facilities of $70m have been negotiated to see them through the refurbishment process, with $50m now in use. At $1m per store and 60+ stores to go, it would seem that $40m will need to be found from cashflows to complete refurbishment. How long will it take to complete the process? Another 5 years seems possible/probable - that seems like some time before RBD is going to look like a cash generator.

RBD has always been and will continue to be a cash generator. Even if earnings are flat the EBITDA over the next five years will be over $150m. That easily covers the $40m you suggest is required for total chain refurbishment.

SNOOPY