Daily ShareChat: Restaurant Brands

By Jenny Ruth

Thursday 7th May 2009

The stand-out in Restaurant Brands' latest results was the performance of KFC which accounted for 68% of the company's sales in the year ended February and 87% of its earnings, says First NZ Capital analyst Sarndra Urlich.

KFC maintained its profit margin at 18% of sales.

The company expects KFC's top line growth to continue as it continues to invest in its store transformation program, including aggressively pursuing new sites. "Margin maintenance is expected to be driven through greater store efficiencies and price increases where appropriate."

The struggling Pizza Hut chain, whose sales fell 9.6%, is expected to return to positive same-store growth this year. "However, the continuing themes of competition and cost pressures are likely to curtail any chance of improving profitability."

Urlich lifted her discounted cashflow valuation from $1 to $1.09 after the result, reflecting the company's lower-than-expected debt profile - debt fell to $33.9 million from $42.3 million a year earlier.

"Assuming that Restaurant Brands does under-promise and over-deliver, a scenario highly likely in our view, this should provide further stimulus to the share price." The shares were trading at 86 cents when Urlich raised her valuation and she said they were cheap at that price, given its attractive yield. The shares ended Wednesday at 94 cents.

BROKER CALL: First NZ Capital rates NZX: RBD as outperform

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