Daily ShareChat: Restaurant Brands

By Jenny Ruth

Tuesday 27th October 2009

Restaurant Brands' first-half results have prompted First NZ Capital analyst Sarndra Urlich to upgrade both here earnings forecasts and her valuation of the shares.

"Admittedly, Restaurant Brands is not a glamorous stock but it is a solid story with some growth potential. Another factor to consider is the attractive dividend yield," Urlich says.

She has lifted her target price and valuation from $1.35 to $1.57 and raised her 2010 net profit forecast by 8.4% to $16.3 million her 2011 forecast by 10.8% to $17.1 million.

Urlich says the Restaurant Brands story "is a KFC story, full stop!" In the six months ended September 14, KFC accounted for 70% of sales and 87% of operating earnings.

She says the transformed KFC stores are showing continued momentum moving into the key Christmas season.

"The rationale for our aforementioned upgrades pertains to our revised thinking about KFC. We had previously assumed that growth would stabilise from here," she says.

"What appears to be happening, however, is that the traction from the already transformed stores is real and long-lasting."

With a further 30 stores to be transformed over the next few years, "Restaurant Brands could very well enjoy further ‘super growth' from the KFC brand."

The company also manages the Pizza Hut and Starbucks brands in New Zealand.

BROKER CALL: First NZ Capital rate Restaurant Brands as outperform (when the shares were trading at $1.42).

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