Sunday, October 18, 2009

Restaurant Brands: Buy or Sell?

My regular readers will know I have been critiquing Restaurant Brands [RBD.NZ] for many years and my comments have been far from complimentary at times.

I have been a shareholder in the past and have never lost interest in the mis/fortunes of the company or in the yummy food that KFC serves up.

With the latest half year result for 2009 out Friday I may have to reconsider my stance on what I think about the company and its future.

That result showed a half year better than any they have had in around 10 years and they indicate that this is likely to continue in the second half.

Sales and profit are up but a major indicator of business going well is that margins are up as well. This also hasn't been the case for many years but is on the back of cost savings rather than increased counter prices so clearly indicates good management of shareholder capital in tough times.

The major force behind the recent resurgence of RBD has to be Russel Creedy, the CEO/CFO, brought in during 2007 to revive the companies years of lagging fortunes. He has got to work quicklyand efficiently and most importantly his goals have been indicated to the market and to staff clearly and executed well.

Years of under-performance has largely been forgotten by new shareholders and market watchers who have more than doubled the company share price over the last several months with increased buying and a re-inclusion in the NZX 50.

I have not forgotten however and this is where my big but comes in.

Creedy has done a fine job in turning the fortunes of his company around, when nobody else has been able to do so since it listed but the one thing the company has lacked in terms of performance is consistent profit on a year to year basis or an indication that it has been able to grow profit significantly.

At post NZ$300 million in sales the company should be able to consistently return a minimum profit of $15 million per annum, based on the sectors margins and more if costs and service levels can me maintained.

The company has never been able to achieve this year to year under previous management and are just through their first year of good results under Russel so it remains to be seen whether he can sheppard KFC, Starbucks and Pizza Hut through 2-3 years of good results, a length of time one can expect to give a company such as RBD - whose past has been wracked with poor results, management and a dismal future - to prove to the market and establish itself as a serious business with a good long-term future.

The boost in company fortunes has also been bolstered by the recession, with sales artificially up because punters are heading to cheaper fare when buying ready prepared meals -beware then of a tail off when things look better economically.

So clearly current investors need to make a decision whether to sell at the currently high stock price this company is selling for or hope that the present turnaround will be a sustained one, and they can then reap a decent return as the years unfold.

I have seen the share price do this 3 or 4 times based on a "turnaround" only to head back down to the penny dreadful price it was attracting at the beginning of 2009.

The jury is still out.


Restaurant Brands @ Share Investor

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2008-2009 KFC sales figures mislead investors
KFC Finally Flying
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RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss Restaurant Brands @ Share Investor Forum

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