Forum Archive Index - April 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

I want to say a few words on Restaurant Brands, which is a company 
that hasn't received much attention on this forum of late.  It 
appears to be an appalling trading share because it seems to be 
'stuck in a rut' of short, medium and long term uptrends since 
1998 ;-).

Around the end of year 2000, AMP Henderson stood in the market for a 
substantial stake in the company at $1.25 per share.   Here is what a 
couple of our more vocal sharechat contributors said at the time:

Jefley Aitken:
"i'm happy to hold and accept the divvies,
but i'll move out after good upward movement because i
dont expect growth to surge on and on. 
 my brokers rate them over $2, and reckon the current
 price is a bargain -- but i'm not buying more ..."

Peter Maiden:
"In my case it was an opportunity to turn a small 'paper
loss' into a real gain. I had somehow managed to have
too much exposure to RBD - because it had not made much
sense to sell at prices below 110 they had been trading
consistently at."

Now, not wishing to rub too much salt into the wounds, but if either 
of you Jefley or Peter had held on or bought more (i.e. ridden the 
uptrend) you would have near doubled that money in a mere sixteen 
months!   Any comments?

Just to show I'm not just picking on you two guys I'll have a little 
go at myself while I am at it:

"Because RBD is an interest rate sensitive share, if there
was evidence their debt was coming down, and interest
rates stay down, you might expect their yield to drop to
8% or so, which implies a share price of $1.88.   But I
would see this sort of price as pretty well tops in the
medium term."   Snoopy (20 June 2001)

When I wrote that the share price was somewhere around $1.60.  The 
share is now trading at 5 year highs of $2.14 today!  So given that 
trends don't go on forever, is now the time to sell?

How on earth could we all be so wrong?  I can't answer for the 
others but I can for myself.   

It seems that in selling off the restaurants themselves early this 
year, and then renting them back, that Restaurant Brands MD Jim 
Collier has committed a master stroke.   He sold the company's 
property interests at near the top of the market and got his debt 
down.   

Then he undid all that good work and went into Australia and bought a 
distressed Pizza Hut chain from receivers!   But was that such a bad 
move?  It appears not.

My theory is that the market is now starting to see RBD as a growth 
share and not just an income play.  Yield is still good, but I 
wouldn't be surprised to see Restaurant Brands end the year share 
price at closer to $3 than $2.  I don't really understand how 
Restaurant Brands got away with expanding into Australia.   I thought 
there was some clause in the franchise agreement with the parent US 
company that runs KFC and Pizza Hut that restricted them to New 
Zealand only.   Can anyone clear up that mystery for me?    Whatever, 
Collier seems to have done it.    And far from moving into new 
territory, Australia is actually his old stamping ground.   You can't 
accuse Collier of moving into markets that he doesn't know!

Chris Castle did a column on RBD a few months back noting that if 
RBD management could reinvest the capital from property sales back at 
the sorts of return on equity figures they were getting on their non 
property assets *before the property sale*, we could see a big jump 
in earnings from the company.   I wonder if their foray into 
Australia will be the way to do exactly that?   Do you have any 
updated thoughts on this company Chris?

Would welcome anyone else's comments on Restaurant Brands as well.
And Jefley, who was your broker?   Looks like she earned a bouquet on 
this one.

SNOOPY

Hold RBD:  Recently 'averaged up' at $2.08, and may be looking to 
'average up' further.



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e-mail  tennyson@caverock.net.nz
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"You can tell me I'm wrong twice, 
but that still only makes me wrong once."

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