Daily ShareChat: Restaurant Brands

Restaurant Brands (NZX: RBD ) continuing profit upgrades are almost all due to its KFC chain, says Guy Hallwright, an analyst at Forsyth Barr.

"Store refurbishments and an improved menu continue to deliver exceptional results," Hallwright says.

The company again upgraded its profit guidance at its annual shareholders meeting earlier this month to between $24 million and $26 million before non-trading items from between $22 million and $23 million previously.

"The company is pushing ahead with its accelerated upgrade plan for the remaining half of its KFC stores which have not yet been upgraded." Ten more stores will be upgreaded in the next year at a cost of $11 million.

"Management believes 20% margins are sustainable at KFC but our valuation is more conservative, assuming margins revert to their longer-run average of around 18% over the next eight years," Hallwright says. He values the stock at $2.33 and says if 20% margins were sustainable that would rise to $2.63.

The company still intends to sell a number of its Pizza Hut stores to individual franchisees and sales of the first two stores should settle in the next two months, he says.

"As with Restaurant Brands' Australian exit, it appears the process of selling stores in lengthy due to Yum!'s legal and other requirements." Yum! owns the KFC, Pizza Hut and Starbucks brands and franchises them to Restaurant Brands.

Recommendation: Hold

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