Stock of Week: Restaurant Brands Ltd

This weeks Stock of the Week, Restaurant Brands Ltd [RBD.NZ], as I pointed out last week, is a tale of two stocks.

It takes a bit of a leap of faith by current shareholders not to sell and for new shareholders wishing to buy - current fortunes of the company now being at a high and the share price starting to reflect that.

All is not lost though!

This company has rallied from penny dreadful status many times before and has managed to reward shareholders who got in at the early stages and there is probably more upside to come.

From a 52 week low of 58c to the current 52 week high of NZ$1.42 the share price looks likely to rally closer to the 2 dollar mark as it has done before so there is room for a good short term gain if you think the company profit is unsustainable or room for a good long term return if you think the company is on track for more of the same -this would defy company history however.

The dividend has just been raised for the latest results to 4.5 c to give this stock a gross return of slightly over 7.5%, not bad when term investments are getting 4%.

Good luck!


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Restaurant Brands @ Share Investor

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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


Fast Food, Fast Track: Immigrants, Big Business, And The American Dream by Jennifer Parker Talwar
Buy new: $30.60 / Used from: $0.56
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c Share Investor 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

Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
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RBD gives KFC a push
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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


Fast Food, Fast Track: Immigrants, Big Business, And The American Dream by Jennifer Parker Talwar
Buy new: $30.60 / Used from: $0.56
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c Share Investor 2009

A Note to Prospective Restaurant Brand's Shareholders

There has been market talk in the past and more out today about how positive things look for Restaurant Brands [RBD.NZ] profit next year.

Yes, profit will be up marginally from last year and substantially from the last few years but this company really has had a dreadful past, so any increase in profit will look good.

I am not sure whether anyone follows this company closely in the broker/choker set but if they do they were either in nappies when the company listed back in 1997, too lazy to analyze the company's history properly, or ignoring the bleeding obvious simply because the stock will be back in the NZX 50 next week and brokers will have to add the stock to their index funds - read pump and dump.

While South African CEO Russel Creedy has done a much better job than any leader the company has had, he has gotten the company out of the fast food graveyard by focusing on cutting costs, speeding up service times and levels of service (my experience from gorging at KFC for the last 15 years and being a large RBD shareholder in the past) the industry that his company operates in is notoriously cyclical.

Fast food is currently undergoing a renaissance of sorts because of dire economic circumstances and people are looking for cheaper places to eat. RBD is now in the upper part of the fast food cycle, in fact I mentioned about ten years ago that its business cycle is up and down more than a cheap Krd hooker, anyway, that aside, my bet is that the stock may even race up to one and a half dollars or more from its current 1.02.




It has moved over the last couple of months ago from a low of 57c a stock price it last reached in the late 90s.

My point is if you are interested in buying into this stock, be warned that you should be there for the long-term because its stock price will come down again when it moves back off the peak of its economic cycle and once again struggles to maintain profit.

You have been warned dear readers but as always, do your own research.

Restaurant Brands @ Share Investor

Pizza Hut sell-off provides opportunities all-round
Danny Diab & Restaurant Brands
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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Pizza Hut sell-off provides opportunities all-round

The finalisation of details yesterday of a decision made last year by Restaurant Brands [RBD.NZ] to ditch their company owned Pizza Hut restaurants and flog them off to owner/operators brings to an end the long running saga of this money losing brand in RBD's stable of 3 - KFC & Starbucks being the two others - brands.

For many years Pizza Hut has dragged down the company bottom line while KFC has struggled at times to hold up the whole company - Starbucks has also been a money loser since its introduction in 1999.

Many of my readers will know that I was a early shareholder of RBD and actively pushing management back in 1998 to ditch Pizza Hut and sell them to owner operators as that was how their competition was kicking Pizza Hut's backside.

Better late than never!

This latest development will be good for RBD shareholders. Not only will RBD get one-off money for selling Pizza Hut stores but they will also get ongoing management fees for each store that is sold-a sub franchisor of sorts, as YUM! still remains the big daddy franchisor.

All Restaurant Brands shareholders need is the double -Starbucks to be sold off - and the company will be much more able to withstand the highly competitive fast food market with KFC as the big star.

Of course the Pizza Hut sell off provides a good opportunity for individuals to buy a run down business and develop it into a good one.

A franchised pizza business like Pizza Hut, if run well, is a great way to make money.

Domino's Pizza owners in New Zealand have done this well over the years and this has left Pizza Hut as the also ran after being the dominant pizza force in New Zealand for years.

If you have a couple of hundred thousand free cash and access to debt you might well want to give RBD a call right now.


Restaurant Brands @ Share Investor

Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
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


Fast Food, Fast Track: Immigrants, Big Business, And The American Dream by Jennifer Parker Talwar
Buy new: $30.60 / Used from: $0.56
Usually ships in 24 hours


c Share Investor 2009

Danny Diab & Restaurant Brands

Well, he has finally done it.

Over the years Danny Diab, franchisee of a number of Pizza Hut stores in Sydney and a director of Restaurant Brands Ltd [RBD.NZ] has managed to cobble together a holding of 5% in the company that he works for.

He hasn't had to shell out a huge amount of money to get his holding of almost 5 million shares, as the share price of the company has been predominantly below NZ$1.50 since he has been on the board and well below $1.00 for the best part of a year.

We know he is a successful Pizza Hut operator in Australia but there is alot we don't know about the man and his possible motivations for owning such a large stake of RBD.

Lets have a look at his investment strategy first.

He owns his RBD holding through his investment vehicle Diab Group and we can understand his motivation for getting into RBD as an investment because he has experience in the QSR industry, through hands on experience and through his investment philosophy:

Our investment philosophy is to deliver long term growth while managing risk. Relying on detailed research data and a proven approach to investment success, we:

• Construct a portfolio that manages risk while maximising long-term performance.
• Establish optimal asset allocation.
• Select a mix of investments to provide the best possible return for our level of risk tolerance.

To ensure we stay the course during a variety of market conditions. Diab Investments seeks long-term capital appreciation by committing equity to:

• high-quality companies with superior management
• high-quality index products with significant downside protection
• high-quality interest bearing warrants / convertible notes
• By leveraging the capabilities broadly available within the group, we aim to generate superior returns.

The Diab Group integrates a diverse portfolio of companies which operate in the advisory, quick service restaurants, manufacturing and investment markets.

We already know Danny is a long term investor because he has been with RBD for around 7 years as an investor and latter as a non-executive director but what of his continued future with RBD?

We can only guess but it would be natural to assume that he would want to continue to increase his shareholding in the company and there is nothing that motivates an individual to do more or work harder than owning a large financial stake.

His continued presence on the RBD board and as one of the largest investors in the company is something that should encourage long suffering shareholders.

RBD shares were up 1c yesterday to 99c on reasonable volume.

*while Danny has a big presence on the internet he must be camera shy because I couldn't find a photo of him.

Restaurant Brands @ Share Investor

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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

c Share Investor 2009

2008-2009 KFC sales figures mislead investors

Let me just elaborate on a short post I made at Shareinvestor.co.nz regarding Restaurant Brands [RBD.NZ] results to the year ended 28 February 2009.

It is something I have mentioned many times before but it must be stressed once again because Restaurant Brands shareholders and prospective investors in the company must be given the full picture when it comes to RBD managements disclosure over their KFC sales.

The "record" $211 million of sales reported in today's result for KFC is only a record in terms of 2009 dollars. KFC are actually serving up less chicken to fewer customers.

Their best listed year was in 1997 where they did $172.3 million in KFC sales. That is because of accumulated inflation at a very conservative 3% annually over the last 12 years amounts to 36%.

36% inflation means in 2009 dollars RBD would have to sell $62 million more chicken just to match the record made in 1997.

$211 million is a long way from the figure they need to make, of $234.32 million, just to match the 1997 record.

I am not an accountant and nor do I think I need to be but if such emphasis of "record sales" is placed on a figure by RBD management to gain market approval that the expenditure of 10s of millions of shareholder funds on KFC refurbishment in order to attain those sales then that figure should be clearly accurate and take inflation into account. That is simply not the case here.

Granted one can do the math oneself to come up with relative figures and compare year by year sales but having said that, to use current sales figures as a tool to push further shareholder expenditure must be justified to the nearest decimal point.

RBD's figures therefore do not pass this test and furthermore for analysts and business reporters to accept this without question is surely remiss to some extent.

Still my record with this company probably goes back longer than many on the RBD board or those professional stock analysts in their professional capacity.

Once again I am not an accountant but I would like to see inflation taken into account when businesses do their books, at lease an annotation in the audited reports of what the inflation rate was in the last year so a stockholder or a prospective stockholder can make a fully accurate comparison before they decide to buy, or not as the case may be.

Just to end on a positive note, the company is negotiating with YUM! over the Pizza Hut franchise and it is expected that this will allow RBD management to divest individual Pizza Hut stores to owner operators.

This is one thing I have argued for Pizza Hut for years that individual ownership makes for a better run business because owners have skin in the game. Pizza Hut's competitor Dominos have this arrangement and they are currently experiencing records sales.

This solution will be at once beneficial for RBD because Pizza Hut loses money and for the Pizza Hut brand in New Zealand which will be able to rejuvenate itself under an alternative ownership structure.

RBD shares were up 1c to 86c today on reasonable volume.

Restaurant Brands @ Share Investor

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Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
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 RBD @ Share Investor Forum




c Share Investor 2009

What 11 years of Stockmarket investing has taught me

This might be depressing or revealing or both but hang on dear readers you just might learn from my experience.

Discuss this subject @ Shareinvestor.net.nz

If I knew what I know now before I started investing in the stockmarket 11 years ago would I still invest today?

I think that is a really good question.

Again it is a question of long VS short term investing.

The first stockmarket investment I made was quite large at the time. It was around 90% of what I owned at the time. I bought 9600 Telstra shares in March 1998, from memory at about $3.9o something, and sold them 4 days latter for $4.47. I made around $4000 very quickly and got bitten buy the stockmarket bug.

The brokerage was around 600 bucks, no internet trading and getting a broker was akin to joining a secret schoolboy club.

My second investment was made in 1998 (7 April to be exact), was for 1000 shares in the Restaurant Brands [RBD.NZ] IPO at NZ $2.20 per share. If I had held on until last week I would have been able to sell RBD shares at around 80c each. If you include dividends and tax credits totaling around $1.20 I would still be short 20c per share! (see chart below for the sad story)

I sold out years ago at around $1.30. Interesting that I was to pick the buy and hold approach to investing because since these two purchases stockmarket investors have seen: *The Asian meltdown of the late 1990s *The tech bubble bursting in 2000 *9-11, where stocks dropped afterward for many months *The accounting scandals in America in 2002 *2007- ? The credit meltdown and associated recession I have learnt along the way and I am still learning. I bought one internet stock that I lost money on (around $3000) sold all my shares on September 11 and lost a little and then started investing in Sky City Entertainment [SKC.NZ] shares in 2002 and then sold during the accounting scandal for another small loss. Looking back I can see how much of an A-grade moron I really was. I shouldn't have bought the internet stock, that was greedy and I shouldn't have sold in 2001 or 2002. They were mistakes but I learnt from them. I started my current portfolio in 2002 and haven't looked back since. Seven years latter it is still in the black (when dividends and tax credits are included) even after all the recent stockmarket calamity-among the worst in living memory-and I am looking forward to a good return as the years go by. It took me until 2002 to develop my investment strategy, a full five years after my first stock purchase, and it has been from my mistakes that I have learned the bulk of what I now know. I knew nothing of the stockmarket 11 years ago, the most I had heard or seen about it was when I saw Michael Douglas in Wall Street 10 years previously and even then it was as foreign to me as a brain cell is to Al Gore. After 11 years, knowing what I know now would I still invest in the stockmarket? I will keep you posted. Recent Share Investor Reading The Headliner: 2 April 2009 Edition Emotional Refuse A Hickey in Bernard's Advice Nuplex rights decision a dilemna for shareholders Share Investor's 2009 Stock Picks: Looking Back Dead Cats and Vicious Bears Long VS Short: Freightways Ltd Related Amazon Reading The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials) by Benjamin Graham Buy new: $13.25 / Used from: $9.24 Usually ships in 24 hours c Share Investor 2009