Forum Archive Index - September 2003

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

The story so far....

Captain Jim Collier has deserted, and has set off in his row-boat 
across the Tasman.   First mate and KFC manager Chris O'Reilly has 
skipped the ship in another direction.   The Domino pirates are 
threatening an all out attack with Pizzas.....  

Meanwhile, back on board, interim skipper Vicki Salmon oversees a 
ship 'taking on water' in the form of sharply higher utility prices and 
pre-emptive price promotional strikes.   Salmon is down in the hull 
desperately bailing with a bucket so that the full year results will be 
able to be spun with minimum shabbiness, come announcement date.    
Yet when she returns up on deck to keep the watch and drink coffee,  
gold sovereigns start trickling out from below.  The hold has been 
holed!

Disturbing stuff.   The market does not like turbulence, so it comes as 
no great surprise that the good ship RBD has been sailing south this 
year.   However, as investors we cannot profit by re-running old pirate 
films in our heads.   The only question that matters to us is where the 
good ship RBD will go from here.

''Skipper Salmon''  has told us not to expect too much.   Rising utility 
prices will take their toll she says.   I presume she is principally talking 
about power prices here, given the way all our power bills have gone 
up.

How much power would an RBD restaurant use?   Is 6kWh over 12 
hours a good daily estimate?  That makes 48kWh per day or 

365x48kWh=17,520kWh per restaurant per year

If RBD are paying an extra 2c per unit that means the power bill blows 
out by 

0.02x 17,520kWh = $350 per year.   

Increase that effect over the 262 stores that RBD owns and we are 
talking $90,000 per year.    That boosts costs over the 94.815million 
shares on issue by 0.1c per share (one tenth of a cent).    Compare 
that to the $5m RBD will *save* per year from July 2004 (which 
equates to just over 5c per share)  and the power price rises are put 
into perspective.  A 5c chicken cost saving per share will go straight to 
the bottom line as a 3.3c per share increase in profit.  That won't help 
RBD in FY2004 but it must be confidence inspiring as they go into 
FY2005.

So what does this mean for the shareholders?    Whatever the RBD  
profit decrease is for FY2004,  I don't think you can blame it on utility 
costs.   Competitive pressures and a wrong menu mix seem more 
realistic whipping boys.    I suspect we may see some skeletons of 
sailors that should have been buried long ago brought out of the closet 
(for example: the goodwill issue I have highlighted), and tossed over 
the side.   I am sure the new full time captain, whoever that may be, 
won't take kindly to sailing a boat with old bones on board.   As 
shareholders we should be prepared for some dirty laundry.

Dividend for FY2003 was 10c per share, earnings were 11.8c and cash 
flows a boggling 30c per share.   There is more than enough money in 
that cash flow to maintain the dividend no matter how bad the FY2004 
financial report appears on paper.    And there is more than enough 
flexibility in company debt levels to make such a payout.   If 
management can get PH Australia to not lose quite so much and 
Starbucks is able to break even, then the chicken contract savings 
coming up should mean that there is enough leeway to maintain the 
annual dividend at 10c.    With a share price of $1.25 that gives an 
imputed yield of 12%, which  I believe since the rise of WRI is the 
highest on the market.   Furthermore I believe it to be sustainable for 
all the reasons I have given.  

RBD has consistently found support at $1.25.  On a 12% yield, which 
is more than twice the yield you could expect by putting your money in 
the bank,  it is not hard to understand why.    There is a dividend 
payment of 4.5c coming up in a couple of months, so that should 
support the share price in the short term.    Has RBD reached the 
bottom?    I don't make predictions like that.    I don't think we will see 
$2 again in the foreseeable future though.    But at $1.25 on a yield of 
12% with room for some share price movement upward when the fog 
starts to clear, I'm prepared to throw out a challenge.   Can anyone 
construct an argument to show why I *shouldn't* be investing in RBD at 
this price?   I couldn't, which is why I topped up on RBD at $1.25 just 
the other day.

SNOOPY

discl:  hold RBD.  Just added another slice.




--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"




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