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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Fast Food, Fast Track: Immigrants, Big Business, And The American Dream by Jennifer Parker Talwar
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c Share Investor 2009

Trying to define an exit strategy

I think I have developed a successful strategy for myself for buying good stocks - buy and hold for 10 years or more - but shouldn't I really decide in a similar way as to when exactly I should sell?

My first answer to that would be a definite yes but on the other hand if I have picked good stocks/companies to invest in in the first place then surely I should hold them "forever" and collect the returns along the life of the company ? - or at the very least my life.

Lets have a closer look at what I could do when, if and why I might want to sell off parts or all of the Share Investor Portfolio.

Lets have a look at some salient points one might look at when deciding when, why or if you should sell up. You will be able to tell from my many different tangents and questions to myself that an exit strategy to me is as foreign to me as soap is to a Green Party supporter.

Please keep in mind I am writing this as it comes into my head, clearly with no planning:

1. No company lasts "forever". Many of the 17 companies I have shares in will not be around in 10 years, either in whole or in part. Some will have been taken over, some will exist in different forms and others will simply be out of business.

2. Companies fortunes are never static. Depending on what sort of company one has invested in most have economic cycles where profit and performance ebbs and flow. Some that are managed better than others are able to get through these cycles unscathed and manage the extremes well - either because of management or design of the business.

The company value will vacillate between these two cycles and in the case of a listed vehicle a good opportunity exists for that shareholder to take the money and run just past the mid point of that economic cycle to get the maximum return for that asset - until the next cycle begins again of course where one may get an even better return if one has the patience.

3. Management plays a big part in deciding whether to get in or out of a company. If it changes and the fortunes change this could be a very valid reason for you to cash in your chips.

4. An individual who invests in a company, either listed on the stockmarket or private is unwise to invest money one cant afford to lose or will need to pull out in the future but sometimes circumstances change and you may have to reassess your position in the stockmarket - clearly not a good exit strategy and one that I am mindful of given my changing family demands and current economic conditions.

It can be very painful to your wallet if you have to sell any asset and I guess planning an exit strategy close to when you buy - along with the usual due diligence - is a good way of ameliorating any negative outcomes.

5. Setting a percentage return, either on an annual basis or over the term you think you might hold your stock might be a good way of exiting a stock - you cant really argue with hard concrete numbers right? After all you are investing to make money!

6. Look at the returns you might be getting from a comparable business and decide if your company can do better.

7. Consult a financial adviser - nah just kidding, do your own thinking. Only you know what is best for you financially and your exit point will be different to someone elses.

8. Related to the above, do some of your own research about exit strategies, talk to others with more experience in the stockmarket and take the points applicable to you and only you and jettison the rest.

For the life of me even after writing this I am still in more than two minds about when to decide just when to sell. There is so much to take into account when there is money involved and as I said above I am 99.9% sure of my entry strategy but probably 50/50 on when to head to the hills.

My head says I must hold indefinitely because I am pig headed about decisions, I think I made the right initial company choices so why wouldn't I hold until I curl up and die as long as the companies are making moola and then pass on the hopefully much bigger mantle to my little girl? That is very clear in my my head, so I think I will end where I began.

With the intention of holding "forever".

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Rob Fyfe's "Environmental Extremism"

A reader of mine brought this subject up, of sorts, yesterday. That is, the folly of investing in companies that base their business on airy fairy ideas like "green technology" based on the man made global warming myth or in companies whose grip on their business is so tenuous they will sink to the depths of using this kind of bullshit on competitors in the hope they make them look bad.

In my not so humble opinion Air New Zealand [AIR.NZ] is one of those companies.

Rob Fyfe, Air New Zealand CEO has recently labeled Emirates Airline alleged running of "empty planes" across the Tasman as "Environmental Extremism"

"For this competitor, the Tasman sectors are an easy add-on to their long haul flying and an opportunity to earn revenue at only marginal cost and load factors down around 50 per cent seem to be of no consequence," Read more

Fyfe told a gab fest of Global Warming zealots at the Green Skies meeting in Hong Kong.

Now using junk science to attack a competitor is one thing but Rob and the boys and girls down at Air NZ head office have been busy over a number of years spending 10s of millions of shareholder dollars developing nonsense bio-aviation fuels and asking customers to pay extra for their "carbon credit" deficit because of the naughty way they pollute when they choose to fly with the largely Kiwi taxpayer owned airline.

So it is in Robs best interest to attack competitors who don't appear to "care" as much about how filthy flying is because he is spending shareholder money in the hope this will give our airline an edge over the competition and to justify the spending of shareholder dollars - I think the Green Party call it Greenwash.

So Mr Fyfe's stance on the evil of flying is simply a race to the bottom where the eventual winner will be the first to award themselves a gong for being green in the hope it is good for business.

Ultimately though the reckless use of Air New Zealand shareholder money to pursue the bogus notion that every time one flies it is an affront to the environment and by setting your company up as a bastion of virtue above competitors by using this to attack them is environmental extremism itself and will ultimately end in tears and lost shareholder dollars when the whole Global Warming myth unravels.

Stand by for the fallout.


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Investment Property Taxes a boon for the Stockmarket

There has been allot of talk about taxes in relation to investment property recently. There has been a government task force looking into the idea of capital gains taxes on investment property, principally a capital gains tax.

It appears our "business friendly" National Government are trying to shake down its citizens for even more taxes to fund the continued high spending of our Government.

I don't remember them in their pre-election campaigning that they were going to implement new taxes but be that as it may it looks likely some kind of tax on investment property is likely.

I don't agree with this at all, taxes kill economies and make Governments bigger and we know that aint good.

As I wrote last month the best thing to do to put investment property on an even keel with other classes of investments is to remove taxes from those other classes, not add another wallet numbing penalty to property investors.

Either way though if there are taxes applied to investment property, and I think there will be, this is going to be a minor boon for the New Zealand Stockmarket.

The withholding tax applied to dividends by Labour in 2007 further put stockmarket investors on the back foot and any move to even the score with property investment is a win for New Zealand.

The Nats probably wont raise taxes on investment property by a significant amount because of the obvious political ramifications, but any move that hamstrings the investment property market is going to be good for those of us investing in real productive companies that are either listed on the Stockmarket or indeed private ones.

About time us wise ones we got a break.

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c Share Investor 2009