Snoopy your a big man to with stand every bit of rubbish thrown at you by them they would love you to SELL loose a lot of money and say "sorry" so we could all go home to tea and the company could float off to the NEVER,NEVER.. [8D]
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Snoopy your a big man to with stand every bit of rubbish thrown at you by them they would love you to SELL loose a lot of money and say "sorry" so we could all go home to tea and the company could float off to the NEVER,NEVER.. [8D]
You don't have to sell something to lose money, you only need to buy it in the first place. The question is more complex than simply losing money as well. RBD has over time delivered negative returns, but even if the 10 year returns were +5.5% rather than -5.5%, cost of capital and opportunity would still make it a bona fide destroyer of capital.
Got it wrong
The only winners out of this have been YUM! , Starbucks Inc ..... and MR CHIPS
Down another 1.2% on $20 thousand turnover this morning to 85c.
Its surprising how some people could think that this is the best buy on the market at this moment in time. If it all hits the fan there will still be someone out there thinking its a buy. FA or TA systems are in agreement on this one, so who would buy today [?]. Macdunk
I hadn't looked over the RBD figures for a while (since annoying Snoopy on page 3 of this thread by suggesting the dividend would need to be cut). However, my latest look was not encouraging. Some points I thought were of interest:
1. Pizza Hut EBITDA margin was at around 15% in 2003 - 2005 financial years, fell to 13.4% in 2006 but plunged to 6.4% in 2007. I'm not sure the extent of this plunge has been adequately explained to date. Also, to achieve their 2008 forecasts would seem likely to require some substantial reversal to at least 8% margin on Pizza Hut.
2. KFC increased its EBITDA by $1.6m, but depreciation for continuing operations increased by almost $2.0m. Does this mean that increased returns from the new KFC concept stores are being more than offset by increases in depreciation resulting from investment?
3. Debt grew by $16m and cash reduced by $1m during the last year. This was during a period where 12 stores were refurbished and $2.6m was spent on renewing franchises for 50% of KFC stores. This year, only 8 KFC stores will be refurbished, the other 50% of KFC franchises are being renewed and some (all?) or the Pizza Hut ones. Debt facilities of $70m have been negotiated to see them through the refurbishment process, with $50m now in use. At $1m per store and 60+ stores to go, it would seem that $40m will need to be found from cashflows to complete refurbishment. How long will it take to complete the process? Another 5 years seems possible/probable - that seems like some time before RBD is going to look like a cash generator.
Having said that, my current valuation is $1.27, so IF they stay on track for their full year forecast, there might be a medium term trade of up to 20%? At forecast of $9-10m underlying profit, that's a P/E of 8.3 - 9.2. But it doesn't look like a "buy and hold" to me at the moment.
Why use the underlying profit?Quote:
quote:Originally posted by Lizard
At forecast of $9-10m underlying profit, that's a P/E of 8.3 - 9.2. But it doesn't look like a "buy and hold" to me at the moment.
They say that some non trading items will be in the vicinity of $2 million after tax. But those non trading items look like things that were trading items not that long ago -- obviously been understating depreciation etc in the past if they now need to write a few things off.
And every year RBD seems to have some non trading items -- almost becoming the norm in my view and likely to continue into the future, esp as they continue to upgrade and transform things
I think its you scuffer mopping up today .... depriving bling of his 80 cent jobsQuote:
quote:Originally posted by Scuffer
Someone is mopping up is it you Bling, or it could be Bricks I think he likes this stock.
haven't heard from you for a week or so scuffer .... where are you
I use the underlying profit because (wrongly or rightly) I think that will be important in determining sentiment. If their forecasts are correct, reported profits should improve in the coming year - particularly underlying profit. Improving profits usually result in improved share prices, even if the effect is temporary. The market will also be reassured if they are able to achieve forecast this year.Quote:
quote:Originally posted by winner69
Why use the underlying profit?Quote:
quote:Originally posted by Lizard
At forecast of $9-10m underlying profit, that's a P/E of 8.3 - 9.2. But it doesn't look like a "buy and hold" to me at the moment.
Based on available information and trends, I think analysts will tend to see a value discount and, at some point, the discount becomes worth the risk of buying into a "dog" stock. This seems to me to be more common with New Zealand analysts (perhaps because of the more limited pool of stocks they have to extract returns from). So that is why I see that there could be a medium term trade (e.g. 83cps, back to $1.03?). I doubt I will bother to test this theory though, since there are so many other safer stocks to play with.
The "value discount" might make Snoopy consider it a suitable long term hold, but the sensitivity analysis around that valuation, performance history and burden of KFC cashflow commitments makes the valuation high risk. Perhaps in 4 years time when the bulk of the KFC expenditure is completed, then a lower risk outlook will emerge.
:DBling is waiting, doesnt look like too long before they hit 80 cents. Please sell down if you dont like the stock. Bling is ready for some bargains.Quote:
quote:Originally posted by winner69
I think its you scuffer mopping up today .... depriving bling of his 80 cent jobsQuote:
quote:Originally posted by Scuffer
Someone is mopping up is it you Bling, or it could be Bricks I think he likes this stock.
haven't heard from you for a week or so scuffer .... where are you
The fall is because of the 'Pizza Wars' being fought out between PH, Dominos and Hell Pizza. At the AGM we were told NZ has more pizza outlets per capita than Australia. Not the least of the problems is the high cost structure that PH has with their Red Hat restaurants. We were told some are losing money so simply closing them without the need for any gain in market share will help PHs position. I wouldn't call an EBITDA margin improvement from 6.4% to 8% too hard an ask either.Quote:
quote:Originally posted by Lizard
1. Pizza Hut EBITDA margin was at around 15% in 2003 - 2005 financial years, fell to 13.4% in 2006 but plunged to 6.4% in 2007. I'm not sure the extent of this plunge has been adequately explained to date. Also, to achieve their 2008 forecasts would seem likely to require some substantial reversal to at least 8% margin on Pizza Hut.
Today I notice the first sign that he pizza wars might be abating. Domino's single pizza coupon special is now $7.90. It was $6.90 last week. That is Christchurch of course. What are the loss leading pizza prices like in other parts of the country? Anyone?
The depreciation on KFC increased from $3.846m to $4.922m which is an increase of around $1.1m. My allocation of the interest bill ascribed to KFC went up by $700,000 (due to higher company borrowings) and amortization has gone up by $150,000. That adds up to $1.95m. Balance that against the increase in EBITDA of $1.6m and you can see you are correct Lizard. The refurbishment project, coupled with paying half the ten year renewal fee, has lead to a decrease in after tax profit for KFC for FY2007.Quote:
quote:
2. KFC increased its EBITDA by $1.6m, but depreciation for continuing operations increased by almost $2.0m. Does this mean that increased returns from the new KFC concept stores are being more than offset by increases in depreciation resulting from investment?
The number of Pizza Hut stores having their agreements renewed in FY2008 is not material. The big tranche for renewal is due in 2010 (the ex-Eagle Boys premises)Quote:
quote:
3. Debt grew by $16m and cash reduced by $1m during the last year. This was during a period where 12 stores were refurbished and $2.6m was spent on renewing franchises for 50% of KFC stores. This year, only 8 KFC stores will be refurbished, the other 50% of KFC franchises are being renewed and some (all?) or the Pizza Hut ones.
RBD has always been and will continue to be a cash generator. Even if earnings are flat the EBITDA over the next five years will be over $150m. That easily covers the $40m you suggest is required for total chain refurbishment.Quote:
quote:
Debt facilities of $70m have been negotiated to see them through the refurbishment process, with $50m now in use. At $1m per store and 60+ stores to go, it would seem that $40m will need to be found from cashflows to complete refurbishment. How long will it take to complete the process? Another 5 years seems possible/probable - that seems like some time before RBD is going to look like a cash generator.
SNOOPY
What non trading items are you on about Winner? AFAIK the accounts are now clean.Quote:
quote:Originally posted by winner69
Why use the underlying profit?
They say that some non trading items will be in the vicinity of $2 million after tax.
The main write offs (goodwill and depreciation) relate to Australia - a result of the decision to exit. Ther was also a write off of goodwill in NZ on the Eagle Boys acquisition due to the 'Pizza Wars'. Unless you indugle in crystal ball accounting, there was nothing inappropriate in not writing off those amounts in earlier years.Quote:
quote:
But those non trading items look like things that were trading items not that long ago -- obviously been understating depreciation etc in the past if they now need to write a few things off.
SNOOPY
Snoopy - I was referring to the $2M already flagged for the 2008 year .... being "write offs associated with KFC store transformations and Pizza Hut facility rationalisation"
Seems like a catch up to me
Gut and renovate a new store ... write the value of whats left off etc
Companies that have regular one-offs / non trading / abnormals or whatever you want to call them have in essence overstated prior years profits ... think about it
It sort of becomes contagious .... ongoing
Snoopy, as the books can testify, the "additional" refurbishment costs will be only part of the investment cashflows. You cannot ignore ongoing investing cashflow in this type of business, as it is part and parcel of their business and earnings generation. Read W69's post of 12 hours ago on the previous page which lays out exactly what sort of "cash generator" RBD has been. Once this round of refurbishments have finished, they may temporarily become a cash generator while they spend below depreciation for a few years until the next round...as Winner as suggested, the fact they need to write-off existing KFC investment as they refurbish may attest to the fact that their long term depreciation allowance is unrealistically low.Quote:
quote:Originally posted by Snoopy
RBD has always been and will continue to be a cash generator. Even if earnings are flat the EBITDA over the next five years will be over $150m. That easily covers the $40m you suggest is required for total chain refurbishment.
And yes, it seems that a good part of the increase in underlying profit this year will come simply from the reduction in costs associated with PH Australia, rather than the from the much-touted improvements in KFC sales.
Not going to debate this one any further. Not alot more to be gained by poring over the figures at this point.
I have just read the Chairman's address for the first time and saw the quote. You are right Winner.Quote:
quote:Originally posted by winner69
Snoopy - I was referring to the $2M already flagged for the 2008 year .... being "write offs associated with KFC store transformations and Pizza Hut facility rationalisation"
Seems like a catch up to me
Gut and renovate a new store ... write the value of whats left off etc
Companies that have regular one-offs / non trading / abnormals or whatever you want to call them have in essence overstated prior years profits ... think about it
It sort of becomes contagious .... ongoing
I think RBD have been somewhat cavalier about some of these write offs. It is an issue of co-ordinating the expiry of the lease with the expiry of the franchising agreement that applies to the same outlet. Unless both co-incide you are going to have a write off whenever a business unit is moved. But this kind of write off is unavoidable.
As for the write off of the internals of a building before expiry date, well that equipment should be able to be incorporated under the new roof. I agree with you that this kind of write off should come under the header 'normal business'.
One thing I am curious about. When these KFC stores are 'transformed' what happens to the workers? The site is out of action for six weeks or so. Do the workers just go home on full pay for a month? Or are they all sacked? Staff turnover -normally- is high enough for me not to know, being in the infrequent visior to my local store that I am.
SNOOPY
Again I am not sure where you are quoting your figures from Winner, but let's assume you are correct. I don't agree that you can disregard the sale of properties which brought some $54m onto the RBD company balance sheet. It was that capital injection that shored up the balance sheet to enable the expansion into Australia to proceed.Quote:
quote:Originally posted by winner69
SNOOPY - there has to be something fundamentally wrong with the RBD business model
Cumulative cash flows since 2000 pretty sad story
Operating cash flow (money from day to day operations) have been $167M
Spent $141M on franchise fees, capital assets and acquisitions (I have excluded the sale of buildings as this was really a financing issue)
So over 7 financial years they have only generated $26M of free cash..... pathetic
To disregard it is akin to saying:
"That joker across the street couldn't have afforded his new beach house if he hadn't won Lotto."
You can draw up all sorts of arguments saying that interest rate rises since purchase would have put him into a negatively geared situation, his wife and family would have left him cracking under the financial and social pressure of never seeing hubby at home as he worked three jobs to clear his debts....blah.. blah..blah.
The whole argument is bunkum because the guy did win Lotto. And if he hadn't won Lotto then he wouldn't have bought the house in the first place!
The above situation is exactly analagous with RBD and their Australian business purchase. The fact that RBD lost millions in Australia and the fact that our Lotto winner over the road had his beach house wiped out by a tsunami have nothing to do with the affordability, in cashflow terms, of the original purchase.
I agree that if management makes another blunder, like the Australian expansion, things will not look good for RBD. But what you are assuming here is that management have learned nothing from their failed Ozzie experience and they will to continue to expand recklessly even though they no longer have the house to mortgage.Quote:
quote:
With future capex at pretty high levels hard to see this sort of performance changing much over the next few years
High capital requirements with low margins not a good mix
This time the expansion (KFC transformation) capex is producing the increased sales expecte. That was never the case in the PH Australia expansion.
Also the margins for KFC are not that low in retail terms, better than the Warehouse Red Sheds in fact.
SNOOPY
Hi Winner69 I've been around kicking a can amusing myself in some depraved manner waiting for someone to say something to make my ears prick up, it hasn't happened and I think Bling is right RBD are heading to 80 cents.I will re-assess my situation when they hit 80 cents might buy some more.
Of course we have forgotten about all those divies haven't weQuote:
quote:Originally posted by Snoopy
Again I am not sure where you are quoting your figures from Winner, but let's assume you are correct. I don't agree that you can disregard the sale of properties which brought some $54m onto the RBD company balance sheet. It was that capital injection that shored up the balance sheet to enable the expansion into Australia to proceed.Quote:
quote:Originally posted by winner69
SNOOPY - there has to be something fundamentally wrong with the RBD business model
Cumulative cash flows since 2000 pretty sad story
Operating cash flow (money from day to day operations) have been $167M
Spent $141M on franchise fees, capital assets and acquisitions (I have excluded the sale of buildings as this was really a financing issue)
So over 7 financial years they have only generated $26M of free cash..... pathetic
To disregard it is akin to saying:
"That joker across the street couldn't have afforded his new beach house if he hadn't won Lotto."
You can draw up all sorts of arguments saying that interest rate rises since purchase would have put him into a negatively geared situation, his wife and family would have left him cracking under the financial and social pressure of never seeing hubby at home as he worked three jobs to clear his debts....blah.. blah..blah.
The whole argument is bunkum because the guy did win Lotto. And if he hadn't won Lotto then he wouldn't have bought the house in the first place!
The above situation is exactly analagous with RBD and their Australian business purchase. The fact that RBD lost millions in Australia and the fact that our Lotto winner over the road had his beach house wiped out by a tsunami have nothing to do with the affordability, in cashflow terms, of the original purchase.
I agree that if management makes another blunder, like the Australian expansion, things will not look good for RBD. But what you are assuming here is that management have learned nothing from their failed Ozzie experience and they will to continue to expand recklessly even though they no longer have the house to mortgage.Quote:
quote:
With future capex at pretty high levels hard to see this sort of performance changing much over the next few years
High capital requirements with low margins not a good mix
This time the expansion (KFC transformation) capex is producing the increased sales expecte. That was never the case in the PH Australia expansion.
Also the margins for KFC are not that low in retail terms, better than the Warehouse Red Sheds in fact.
SNOOPY
In the same period cash divies were $62.6M .... so the $52.1M from the propert sales have gone to divies ... or avoided the need to borrow to pay the divies.
Benevolent company that RBD ..... win Lotto and give it all to the family members (shareholders that is) ..... to keep the family members happy so they don't leave home
You coming onto the Bling wagon? At 80 cents this pup will be a corporate play. Bling dont know when and if, but at that level it is tempting for a predictor who has the ability and firepower to make RBD work. Those that crunch too much numbers are blinded by the pure business itself and the future potential.Quote:
quote:Originally posted by Scuffer
Hi Winner69 I've been around kicking a can amusing myself in some depraved manner waiting for someone to say something to make my ears prick up, it hasn't happened and I think Bling is right RBD are heading to 80 cents.I will re-assess my situation when they hit 80 cents might buy some more.
I'm with you on this one Bling its just a matter of time before the big boys start to look in the RBD direction then it will be all on, this co. has potential with the right direction, circles and cycles thats what its all about for the big money.Rbd has to be almost at the bottom if not below it, 80cents is looking good.
Cobb & Co used to be a great restaurant chain.
Tastes change. Competition intensifies. Not too many Cobb & Cos left now.
Don't assume this will bounce back. The brands are sick (except Starbucks).