Daily ShareChat: Restaurant Brands

By Jenny Ruth

Monday 12th April 2010

Fast food company Restaurant Brands's $19.9 million net profit before non-trading items was slightly above the company's $19.5 million upgraded guidance with KFC's profit margins rising to 20.7% and solid improvement in Pizza Hut and Starbucks second-half margins, says Forsyth Barr analyst Guy Hallwright.

As a result, he has again raised his forecast for the year ending February 2011 from $21.9 million to $23 million before non-trading items and raised his 2012 forecast from $20.9 million to $23.4 million.

The company has said it is "cautiously optimistic" it will produce a 2011 profit slightly above $20 million, but concedes this is a conservative estimate, Hallwright says.

"Restaurant Brands' main KFC business continues to deliver improved sales and profitability, driven by the success of its ongoing refurbishment program and menu improvements," he says. KFC may also be benefiting from some "trading down" due to the recessionary environment. KFC is planning to open two to three new KFC outlets a year to take store numbers from 85 to 100 and a further 40 smaller stores, potentially operated through sub-franchisees.

He is now assuming KFC margins will remain about 20% for the next three years but doesn't assume this can be sustained indefinitely.

BROKER CALL: hold (his valuation is $2.10 a share compared with last week's $2.15 share price.)

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