RBD - Restaurant Brands

[Snoopy]

So no concerns from me with the debt at EOFY2019 levels. Yet given the poor rate of return on RBD's overseas acquisitions so far (my post 2535) the capital position after RBD's next much mooted acquisition may or may not have to be reassessed. The size of any new subsequent acquisition will be the deciding factor.

Re-reading the Finaccess takeover offer the position on future growth has been mapped out, From page 8:

"Global Valar has confirmed to the independent directors that it does not currently intend to promote a change to Restaurant Brands dividend policy in the near term."

- That is the bit that made me think dividends would continue.- But continuing on reading:

"Global Valar has also stated that after completion of the offer the dividend policy will need to continue to be assessed against other capital requirements in the business on an ongoing basis, with Shareholder value from a dividend needing to be considered relative to the potential value creation from reinvesting the funds within the business."

The takeover document then goes on to talk about capital structure

"Global Valar has advised the Independent Directors that it does not intend to significantly lever Restaurant Brands (i.e. increase Restaurant Brands debt)"

and we learn

"Global Valor does not envisage any future equity capital being required from Restaurant Brands shareholders in the near to medium term, although any large-scale initiatives which are unable to be funded from from business cashflow would require an assessment of capital sources at the relevant time."

We then learn about another Global Valar subsidiary 'AmRest', another owner of restaurants:

"Finaccess Capital set a maximum target leverage ratio of 'Net Debt'/ EBITDA of 3.2x."

So what does all this tell us about 'Restaurant Brands' and the capital required for any acquisitions made from here? If we assume that a "Net Debt/EBITA" ratio of 3.2x applies here, we can start by looking at how this ratio stacks up now. I calculate EBITDA by taking EBIT before non-trading items and adding back 'Depreciation and Amortization'.

	FY2018	FY2019
Bank Term Debt	$166.815m	$145.853m
less Cash and Cash Equivalents	($10.410m)	($15.034m)
equals Net Debt {A}	$156.405m	$130.819m
Declared EBIT	$63.182m	$65.229m
add Depreciation & Amortisation	$29.599m	$30.567m
equals EBITDA {B}	$92.781m	$95.796m
Net Debt/EBITDA {B}	1.69	1.37

:
We are well under that target figure of 3.2 for the Net/Debt EBITDA ratio. In fact from EOFY2019, the net debt can increase to:

$130.819 x (3.2 /1.37) = $305.563m with no more earnings before this self imposed covenant is breached.

If RBD persist with getting that mainland USA beachhead, then my guess is that a even a $US50m -$US100m purchase price for a turnaround business in mainland USA of marginal profitability will not worry the new board. They will be happy with such a post acquisition debt expanded balance sheet.

SNOOPY