Daily ShareChat: Restaurant Brands

By Jenny Ruth

Wednesday 15th April 2009

Restaurant Brands reported a 13% rise in net profit to $11.7 million for the year ended February 28 before one-off costs such as $3.7 million write-down in the value of its Pizza Hutt chain and $1.3 million in other costs.

Nevertheless, Forsyth Barr analyst Guy Hallwright says this wasn’t as good a result as it looks because of changed accounting policies.

The company is now expensing the cost of making advertisements as they are incurred which reduced last year’s after-tax profit by $0.66 million and boosted this year’s result by about the same amount.

"In our view, the earlier standard gives a better view of underlying earnings," Hallwright says.

Nevertheless, he says the KFC refurbishment program continues to deliver improved sales and profitability and "there are encouraging signs that the decline in Pizza Hutt NZ may be stabilising."

He says the renegotiation of the company’s Pizza Hutt franchise with Yum! Brands should give it more flexibility to close poorly-performing stores and to divest smaller stores to individual franchisees – it has 93 Pizza Hut outlets and 42 Starbucks coffee shops but the 84 KFC stores produce most of the profits.

Hallwright is forecasting 2010 bottom line profit will rise to $10.8 million. With the shares trading at 90 cents compared with his $1.30 valuation, he recommends investors "accumulate" the stock.

BROKER CALL

Forsyth Barr rate RBD as Accumulate.

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