RBD - Restaurant Brands

[Phaedrus]

While RBD is quite a volatile stock, the underlying trend is unmistakable. It has been in a linear downtrend for years. For a while it looked as though it had found support at 80 cents, but today RBD broke below that level, making a new long-term low.

The confirmed trendline shown here has a "slope" of -20%. In other words, since mid 2005, RBD's shareprice has fallen, on average, 20% every year. What price dividends?

Snoopy, I believe that one of these days you may well be finally "right" about RBD and the shareprice might begin to climb. In the meantime though, you have paid a very high opportunity cost for holding this stock.

I know I have said this before and must sound like a cracked record, but why not wait until the trendline is broken before buying?

[Snoopy]

While RBD is quite a volatile stock, the underlying trend is unmistakable. It has been in a linear downtrend for years. For a while it looked as though it had found support at 80 cents, but today RBD broke below that level, making a new long-term low.

The confirmed trendline shown here has a "slope" of -20%. In other words, since mid 2005, RBD's shareprice has fallen, on average, 20% every year. What price dividends?

While the share price has declined in a way that has been damaging for investors, this sensationalist 20% decline per year you have come up with Phaedrus is not a fair representation of what has happened. What you did not mention is that just prior to your chart the share price spiked from the $1.30s to the $1.60s as a result of a takeover offer. If you had extended your chart back another year the decline has not been nearly so pronounced for those investors that did not 'buy in' at takeover time.

The reason for the decline in share price, if we remove the effect of the takeover offer being withdrawn, can be summed up in one word: 'Pizza'. The expansion strategy into Australia by selling Pizza in Victoria unravelled. As a result RBD lost some $NZ30m, around 32cps.
This loss will not be repeated or extended because RBD has pulled out of Australia.

The rest of the loss in share value (some 20cps) is because of the decline in the 'Pizza Hut New Zealand' business. During FY2005 this business made approximately $2.2m in after tax profit for the company. Last year Pizza Hut New Zealand lost around $6.5m and there is no indication that things are getting better. Fortunately for 'we investors' the KFC side of the business is doing quite well and is offsetting the difficult conditions at Pizza Hut.

Dividends received over the period of your chart have been 18.5cps, which do mitigate the capital losses significantly.

Snoopy, I believe that one of these days you may well be finally "right" about RBD and the shareprice might begin to climb. In the meantime though, you have paid a very high opportunity cost for holding this stock.

I have paid a high price but not a 'very high price'. There are many retailers out there for which returns have been much worse: HBY, SCY, STU etc etc.

I know I have said this before and must sound like a cracked record, but why not wait until the trendline is broken before buying?

Because of the extension of Murphy's Law: "If anything can go wrong, it will." The more that goes wrong, the less there is left to go wrong so the lower the risk!

I made a prediction that the share price of RBD will range between 73c and $1.60 over the next two to three years. Perhaps $1.60 is a little optimistic, the way input costs are increasing. But I certainly think that $1.30 is a possibility, even a probability provided management can stop the losses at Pizza Hut. A gain of 60% plus dividends in just two years is too big a potential carrot to ignore. I can't afford to be out of this share, and the risk of missing out on such a gain for the sake of a few cents is IMO too high. That is why I am buying in now, not waiting. You have remarked yourself that support levels are not always a fixed number. So I would question whether the share price slipping a couple of cents below 80c is really evidence of the 80c support level being 'broken'. Indeed I see RBD is back up to 80c today.

Perhaps those of you who think Pizza Hut is doomed might consider the following.
Around half the chain comes up for franchise renewal in 2010. So if things have not improved by then RBD could simply slash the chain in size by half by not renewing the ex-Pizza Haven franchises. Because PH is focussed on takeaway, reducing the store footprint by 50% will not reduce sales by 50% so profitability should improve markedly. All RBD need to do to ensure profits improve by 100% or so is to tread water overall - surely not too demanding even for the current management team with their er 'track record'. If they can actually achieve any growth, and I'm not betting on it, then obviously my returns will be much greater than I am projecting. At 80c RBD looks like a 'no brainer' investment to me.

SNOOPY

discl: hold RBD

[Nitaa]

Snopy. It is fair to say that you are in denial. The value of your share has been deminishing year after year. RBDs overall gross profit margin is getting squeezed each year as well. Maybe RBD represents a good buy now, maybe not. I beleive you have been told year after year of the problem with RBD and this year doesnt look to be any different.

You were not concerned about a sp dropping in the past because you got paid a divvy. The real calamity of it is your value of investment is deminishing.

Lets hope for a takeover to recoup some of those losses. RBD reminds me of an extremely slow Feltex where Bel kept averaging down to the point where he almost owned the company but ended up with nothing.

[duncan macgregor]

SNOOPY, I dont think you will ever learn until you go under, and even then you will be in denial. All us low risk investors with sell systems are mostly sitting it out, looking on in bewilderment at your high risk investing style.
Even a simple stop loss set at 15 or 20% for a long term investor would have saved you heaps. Your buy system is deeply flawed, nobody in their right mind would hold on to what you hold. Lets go over what you say you hold and look at them over their high point during the last three years up until today.
1,RBD, $1-65 down to 80c
2,SCT, $2-95 down to $1-30.
4,TUA, $3-85 down to $1-02.
5,TEL, $6-25 down to $3-90.
6, PGW,$2-40 down to $2-05.
7, SKC, $5-75 down to $3-79.
8, LPC, $2-60, down to $2-41.
Thats only some of your stated holdings the trouble is most of the high points are nearly three years old with you stating that you averaged down. RBD is not your worst share TUA and SCT are. Investing is not about spreading your investments about like eagle sh*t over the country side in order to lessen the risk its about demand and supply and understanding market sentiment. 8.5% sitting in the bank definately beats what you are doing coming out of a bull market into a bear market. Mary Holm in granny Herald and you have one thing in common as far as i am concerned. I DO THE EXACT OPPOSITE.
RBD has nothing other than a declining business to sell when it all ends up hitting the fan. At least feltex had a few carpets left over to flog off. Macdunk

[BRICKS]

SNOOPY, I dont think you will ever learn until you go under, and even then you will be in denial. All us low risk investors with sell systems are mostly sitting it out, looking on in bewilderment at your high risk investing style.
Even a simple stop loss set at 15 or 20% for a long term investor would have saved you heaps. Your buy system is deeply flawed, nobody in their right mind would hold on to what you hold. Lets go over what you say you hold and look at them over their high point during the last three years up until today.
1,RBD, $1-65 down to 80c
2,SCT, $2-95 down to $1-30.
4,TUA, $3-85 down to $1-02.
5,TEL, $6-25 down to $3-90.
6, PGW,$2-40 down to $2-05.
7, SKC, $5-75 down to $3-79.
8, LPC, $2-60, down to $2-41.
That's only some of your stated holdings the trouble is most of the high points are nearly three years old with you stating that you averaged down. RBD is not your worst share TUA and SCT are. Investing is not about spreading your investments about like eagle sh*t over the country side in order to lessen the risk its about demand and supply and understanding market sentiment. 8.5% sitting in the bank definately beats what you are doing coming out of a bull market into a bear market. Mary Holm in granny Herald and you have one thing in common as far as i am concerned. I DO THE EXACT OPPOSITE.
RBD has nothing other than a declining business to sell when it all ends up hitting the fan. At least feltex had a few carpets left over to flog off. Macdunk

SO Mc Duck did you get a day of work so you could tell us & Snoopy the same story yet again,, "I DO THE EXACT OPPOSITE" quit shares & gone back to WORK.. tough..

[Phaedrus]

Snoopy, you are quite right to claim that the further back you go, the "better" the performance of RBD :-

Over the last 3 years, the shareprice has declined an average of -20% pa.
Over the last 6 years, the shareprice has declined an average of -13% pa.
Over the last 11 years, the shareprice has declined an average of -10.6% pa.

We can both agree that "the share price has declined in a way that has been damaging for investors"!

As things stand right now, we probably concur on other things as well. I agree with you that RBD is unlikely to fall much further, and that buying at around 80 cents could be seen as a good entry point for anyone wanting to buy into this stock. In short, it wouldn't surprise me if you have finally got RBD "right". To me, however, the most important question is this. How could you have got RBD so wrong for so long? I see it as a blunder of significant proportions and a serious indictment of your system. Forgive me for posting it here Snoopy, but this 2002 post encapsulates the quintessence of your approach. Here you are, already holding RBD, buying yet more and still averaging down ("topping up") at $1.75.

The quality and depth of your analysis is truly impressive, though. (I am NOT being sarcastic)

So painstaking.
So measured.
So erudite.
So prudent.
So meticulous.

Yet so wrong.

[Snoopy]

SNOOPY, I dont think you will ever learn until you go under, and even then you will be in denial. All us low risk investors with sell systems are mostly sitting it out, looking on in bewilderment at your high risk investing style.

Lets go over what you say you hold and look at them over their high point during the last three years up until today.

1,RBD, $1-65 down to 80c
<snip>

Macdunk, I am not go to respond to all your off topic rubbish, as I have discredited it all many times before. The only thing I will say is that, unlike you, I buy at the 'low point' and *sell* at the 'high point'. Those 'high point prices' you quote are so far away from what I actually paid for all those shares it makes your 'analysis' of my performance a complete joke. And of course you assume that just becasue a share is quoted at a certain price it would have been possible to sell all of my shares at that price. Most of my shares are outside of the NZX10 which given the number of shares I hold (relative to liquidity) would make such theoretical sales impossible (in most cases).

For your information my average holding period for RBD *is* three years (just by co-incidence). However, my average purchase price is now $1.19, not $1.65. I have also received 19c in dividends per share over the last three years. So my average holding cost is in effect $1.

So I am down, but not by the amount you seem to think I am. And your response to that is I should 'sell out' at the *low point* because of historical information that is already built into the share price? I guess that shows why someone like you would never 'cut it' as a financial advisor.

Investing is not about spreading your investments about like eagle sh*t over the country side in order to lessen the risk its about demand and supply and understanding market sentiment. 8.5&#37; sitting in the bank definately beats what you are doing coming out of a bull market into a bear market.

Actually I think Mary Holm would be shocked to find that I only held nine NZX primary listed shares. Under your warped sense of reality you consider that a 'highly diversified portfolio'. But it isn't at all.

Only a few months ago you were telling us that due to your success in the markets in 2007 you had doubled your return target to 400% for 2008. Now you are completely out of the market cowering in the bank earning 8.5% and telling us what a great investor you are. Yet twelve months previously you were berating me for setting my return targets at twice the bank interest rates (over the long term business cycle) because that target was absurdly low!

I haven't changed my tune at all over all that time. Yet you have become a ranting and raving 'former investor' who is completely hypnotized by 'the market', like a possum standing in the middle of the road dazzled by headlights of money and power.

Actually investing is about ignoring what Mr Market is doing except when his irrational behaviour throws up silly prices. At that point you can take advantage of him and that is what I am doing now, buy buying RBD at 80c. I am not trying to 'time the market' though. I had my order in for about a month before it was actually triggered by Mr Market going manic depressive. In about three months time I will probably be back for more RBD as part of my 'value averaging' strategy.

RBD has nothing other than a declining business to sell when it all ends up hitting the fan. At least feltex had a few carpets left over to flog off. Macdunk

Did Feltex shareholders get anything from that final sell down of carpets?

SNOOPY

[Onthemoney]

I would be very careful all they run is brands for Yum. Loose those rights and they are in trouble. They would have nothing but sites. The story going around is that they were very lucky to secure some of the rights to KFC last time hence the investment.

[Onthemoney]

You are welcome hiawatha. They have the rights to trade from Yum - but apart from that a lot of expensive leases. Check out what their arrangements are with Yum. I would be sweating on renewals with some brands on current performance. What is stopping someone like TPP taking on the franchises or anyone else for that matter.

[Snoopy]

You are welcome hiawatha. They have the rights to trade from Yum - but apart from that a lot of expensive leases. Check out what their arrangements are with Yum. I would be sweating on renewals with some brands on current performance. What is stopping someone like TPP taking on the franchises or anyone else for that matter.

Onethemoney, all the KFC franchises have been renewed for another ten years over this last year. That agreement also carries a right of renewal for another ten years (for all the rebuilt stores) although I am not sure if YUM can get out of that renewal clause. The Pizza Hut franchises renew on a rolling basis on the tenth anniversary of each store opening. Basically they renew in dribs and drabs except for 2010 which is the tenth anniversary of the Eagle Boys acquisition. The renewal there involves some 30 stores.

Your suggestion that all the property leases are 'expensive' is curious. All of the property site sales were done on an open tender basis. At the time RBD announced that they were very pleased with the results of the tender process. Thus all of the lease arrangements are at 'market rates'.

The franchise renewal fees are independent of the profitability of the individual stores. YUM get their money whether the individual stores are profitable or not. The renewal payments are indexed to inflation, not performance. To a large extent YUM doesn't care about RBDs profitability because YUM get their money anyway.

While I accept the message of your post (it is important to know the structure of their arrangements with YUM) your posts seem high on insinuation and light on accurate content.

You also don't seem to know that RBD is not entirely under the thumb of YUM. The cafe side of the business is franchised from Starbucks, which is a completely independent company.

SNOOPY