Now back at the top of the range be interesting if we can break out this time - 3rd attempt in nearly 2 yrs
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RBD is my biggest NZX holding. It is surprising to me that many commentators late year considered it fully or overvalued. Even my broker rang and recommended that I sell down my holding because if anything happened at RBD it would have a significant effect on my portfolio overall. At the time I looked around at other retail shares to diversify into and found nothing better. Nevertheless, instead of having all my retail eggs in one basket I made a big decision - to diversify.
1/ I would risk adjust my overall retail holding so that the trend of buying alternative retail goods over the internet had little effect.
2/ I looked for retail investments that were not beholden to greedy mall owners ramping up their rents annually.
3/ I decided to stick to the food sector as that is generally fairly recession proof.
4/ I split my food investments into four: the first KFC an established cash cow. The second Carl's Junior, an emerging brand with national sales prospects. The third Pizza Hut, where some clever reworking of price points and the disposal of less well performed stores had the potential to revive profits in what was seen as a tired brand. The fourth, Starbucks, which is similarly resizing down to a profitable core.
In summary, I actively decided to do nothing at all. With the growing sickness among almost all other retailers this has proven to be a very successful strategy. Having followed this company for some time, I would be very surprised if there is a significant break out, either on the upside or the downside. Current dividend levels I believe fully support the current share price. And growth initiatives should mitigate the usual negative effect of rising interest rates. It is steady as she goes for me, as those dividends continue to roll in.
SNOOPY
On Monday evening I attended an excellent presentation put on by Macquaries.
They felt the NZ ecomony was improving,and with low unemployment the out look for RBD was looking very bright.Increasing sales leading to increased dividends.
The trust I am a trustee of brought a parcel of RBD shares on Tuesday afternoon at $2.92.
I almost pulled the trigger on getting some of these a few months back when they were in the $2.70 range as I thought Carl's Junior would be a winner. I still kind of wish that I did get some, but I am not sure that Carl's is enough to offset KFC and Pizza Hutt—especially if Carl's is just a fad and Burger Fuel expands. Carl's is still very popular here in Singapore whereas KFC and Pizza Hut doesn't seem to have a great brand image (at least to me anyway). Looking at Carl's Junior's Facebook page it seems like the service and standards are pretty piss poor—although people likely to bother commenting are usually the ones who are unhappy with it.
I would think that in an improving economy, people would be keen to avoid Pizza Hut, Starbucks and KFC and replace them with more premium options like Hell's Pizza, local coffee shops and avoid fried chicken altogether...
In saying that, I would still consider getting some if it comes back down to the $2.70 range.
RBD was one of my first equity investments. Since then they have provided me with way above market average returns. Mind you, the SP has been on a rollercoaster, and timing would be so important with this shareholding. Way back when I bought RBD, healthy eating was a hot topic and I had doubts that RBD may be caught on the wrong-side of the health issue and the Political Correctness line.
Should one avoid companies that sell or have or use sugary foods, fatty foods, carcinogens, dangerous items, weapons, chemicals, artificial additives, rainforest clearing, environment polluters, animal testing, poor wages, child labour, bribery, price fixing. Ethics, societal fashion and possible government regulation can be relevant to so many companies.
Sure, but for the record, I am not avoiding it because it is bad for you, more that it is low quality bad stuff. E.g. in a good economy I would buy Suntory Hakushu and not even think about touching Johnnie Walker Red. Not trying to be a snob, but why anyone goes to KFC, Starbucks or Pizza Hut I will never know.
Fair point. I did misinterpret. Taking the other viewpoint, perhaps in a good economy, people undertake big investments, such as buying houses cars and other big ticket items, leaving less for takeaways, premium or otherwise. Personally I don't think Hell's is of better quality than Pizza Hut, and I like KFC ( as a treat when I visit with my shareholder voucher!)
In such short time?
Saturated fat is not bad for you: http://www.telegraph.co.uk/health/he...rt-expert.html , Of course as with any research...you always need to check to see who is funding it.
I would not do a "supersize me" on sushi, chcocolate bars, fish and chips, or muesli either.
BTW, I support GST being removed from fresh fruit and veg.
I like your point about if Carl's is enough to offset pizza hut or KFC, however, I was taking a stroll around the city, and burgerfuel was dead, whereas, carl was busy...
Don't forget in an improving economy, it is still the rich who gets richer, whereas, the poor still stays poor...
Back into channel
Well Percy, despite what 'the market' was hinting at before the result was released (with the price drifting down to $2.85), I think that yours and Macquarie's confidence has been vindicated.
I got excited when I heard on the radio that the result was up 20%. But then I found that figure included "non-trading items". The real operational after tax net profit was up 6.8%. Nevertheless in a tough retail market, and with Carl's Junior still very much in development phase, this was rather better than I expected. A modest increase in dividend accompanies the higher profit too. Meanwhile the gearing ratio is down from a moderate 19% last year to just 11% at balance date.
I expect to remain a Restaurant Brands junkie for many years to come on the strength of this result.
SNOOPY
discl: hold RBD
I have a very modest holding left over from a selling mistake about 5 years ago (I sold slightly less than my holding) which does mean however that I get a free dinner once a year. But just looking at the share price so now and then in the paper I get the feeling that the $3 mark seems to be a very tough nut to crack?
Great result
Even with refurbishments and the roll out of Carls (with no gain) the cash flow has managed an increased dividend and repaid nore than $6m of debt.
Cant do much better than that
Current cash flows support a share price of $3.70 to $4.20, even using modest future growth rates of 5% to 7%
That $3 mark seems hard to break through .....but I have a feeling that once it does break through (soon) than the share price could easily head to $3.50 plus (by Xmas eh)
Another attempt at the top of the range, a break should give a run to 3.30 me thinks. Weird this company so under- performed the nzx dont ya think when you look at similar companies in aus have gone gang-busters.
Reuters consensus is 3.2 at the moment but not sure if its updated for latest results
If you go to page 43 of the FY2013 Annual Report, then look under 'Analysis of Expenses', you will see that RBD paid $18.560m in Royalties last financial year. That covers the KFC and Pizza Hut brands that are owned by YUM. But is also covers Starbucks and Carl's Junior that are not owned by YUM. There is no specific breakdown in the segmented results which tells exactly what franchise fee amount goes into each of the four boxes ( KFC, PH, Starbucks and Carl's Jumior).
If you take the franchise fees paid in total and divide it by the total operating revenue I get:Quote:
Years ago when I looked it was 10% of gross revenue.
Do you know whether it has changed.?
$18.560m / $311.813m = 5.95%
However, it may net be quite as simple as that, as I will explain in my next post.
SNOOPY
I need to take you back to 21st May 2003, when a shareholder Mr G Bulling put a resolution to the AGM that RBD should fully disclose their franchise fees. The issue was not the annual franchise fee, but the once in ten year renewal fee that allowed RBD to keep operating their brands in NZ under the master franchise agreement. The resolution was lost as the board deemed such information commercially sensitive. But the board had this to say about franchise fees:
"Shareholders may take as a reference point the renewal fees disclosed for the original purchase of 122 stores ( Pizza Hut and KFC ) from Pepsi, ie $55,000 per store adjusted by the New Zealaand CPI from 1997 to the renewal date in 2007."
It is now 2014. So if we look at the CPI data since that time:
http://www.rbnz.govt.nz/statistics/k...phs/inflation/
Than use 2.5% as an average inflation figure,the renewal fee in todays dollars given the 17 years elapsed since 1997 can be estimated as follows:
$55,000 x (1.025)^17 = $55,000 x 1.52 = $83,600 per store for a ten year period. That translates to $8,360 per store per year. Last year RBD has 177 stores at year end. I would argue you should amortise this one off cost over each year of the ten year franchise agreement. So the amount amortised each year shoud lbe:
177 x $8,360 = $1.479m
Add that to the actual franchise fees paid above:
($18.560m + $1.479m) / $311.813m = 6.42%
So sorry Percy, I still can't get to your 10%. But there is one more chapter to round out this story.
SNOOPY