Financial analysis report on Restaurant Brands

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Financial analysis report on Restaurant Brands

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Table of Contents

List of figures

List of Tables

Executive Summary

The Industry

The Company

The Financials

Conclusion and Recommendation

References

List of Figures

Restaurant Brand’s stores in New Zealand

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Revenue graph for the last 5 years for Restaurant Brands

Bank Debt and dividend of the company

Stock Price for Restaurant Brands

Profit Margin and company’s leverage

List of Tables

S.W.O.T. analysis of the industry

S.W.O.T. analysis of the Restaurant Brands

Revenue of Restaurant Brands from its franchises

Earnings and Dividends from 2008 till 2014

Executive Summary

Restaurant Brands is a New Zealand company which franchises major brands like KFC, Pizza Hut, Starbucks and Carl's Jr. across New Zealand. This report shows a financial analysis about the company so as to make a decision whether Portfolio Managers Ltd. can invest in the company. Restaurant Brands founded in 1997 is a well established company and has 176 stores in New Zealand. Fast food has become a new trend and one the most demanding industry in the current decade and Restaurant Brands is a leader in this industry. Financially, the company has drastically increased in revenue comparing the previous years. And it has proved there is a constant income in the business. The company's new venture in Carl's Jr. has also showed a decent profitability in the industry which shows the company is expanding nationwide in different fast food brands. The whole report would lead to recommend Portfolio Managers Ltd. to invest in Restaurant Brands.

The Industry

Food is one of the industries in the world which is profitable if the brand maintains its quality and it is well established. Few years back New Zealand did not have much fast food restaurants, fast food has become a necessity in today’s generation. And franchising a well established fast food brand is getting better. As the raise in number of different multinational brands in the last few years show the raise in the industry. As an industry there can be lots of competition but there are only few major fast food brands. Restaurant Brands operates with major players like KFC, Pizza Hut, Starbucks and Carl’s Jr. There is a slight possibility of competition in the market as the competitor brands like McDonnell's, Dominos pizza are emerging.

S.W.O.T

Positive

Negative

Internal

Strengths

- Existing business model - Support from the brand

- Lesser competition for bigger brands

- Less labor costs

Weaknesses

- Constrained industry

- High maintenance

- Lesser profitability

External

Opportunities

- Constant income

- New and big market

Threats

- Intervention of government regulation

- Brand reputation is priority

Table 1: S.W.O.T. analysis of the industry

The rise of the Part-Time Economy, Refranchising, eCommerce integration, Multiple Unit Ownership and More legislation of franchising are the few major trends in this industry. The industry is slightly new to the market but a profitable industry. A right brand would lead to high success rate and profitability.

The Company

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A world wide recognized brand has its own standards and method of operation, managing a brand worldwide is impossible. Franchising companies like Restaurant Brands plays a major role in managing these branded chains of retails. As of February 2014, the company has 176 outlets which includes 90 KFC, 51 Pizza Hut, 27 Starbucks and8 Carl's Jr outlets. There are over 3,700 employees and 60,000 customers visit per day all over New Zealand. The increasing number of stores for every brand over the years and the quality maintained by every store is the major success of this company. The following chart shows the number of stores the company owns; the company has major percentage of KFC stores.

Figure 1: Restaurant Brand’s stores in New Zealand

S.W.O.T

Positive

Negative

Internal

Strengths

- Brand Loyalty

- Market leaders brands

- Highly profitability business

- Diversified company

- Introducing Carl’s Jr (high profitability and shows expansion)

Weaknesses

- Low Productivity

- Limited target market(youth)

- Should maintain high standards

- Lack of R&D

External

Opportunities

- Increase demand of fast food

- Expansion possibility

- Targeting other recognized brands

Threats

- Raising competition

- High Taxes

- Government and environmental interventions

- Increasing food costs

Table 2: S.W.O.T. analysis of the Restaurant Brands

Every company has its ups and downs. According to the above SWOT analysis, Restaurant Brands has its own advantages and disadvantages. The good thing about the company is that it franchises the biggest brands in the world and has been showing a very good profitability. The only concern for the company is the government intervention and taxes. The increase in cost of food is a concern but comparing the cost of a normal restaurant and a KFC meal it’s very low.

The Financials

Restaurant Brands Limited is an international company which is listed on the New Zealand Stock Exchange. According to the financial reports, the following graph shows the revenue of the company for the last 5 years. It shows the drop in revenue in 2012, it was mainly due to the earthquake, even though there was a 4.4% of drop in the revenue the following years showed a significant increase. In 2014, the revenue increased by 5.6% and the net profit went up by 23.5%; it is also the second best profit in 17 years for the company.

Figure 2: Revenue graph for the last 5 years for Restaurant Brands

2014 ($m)

2013 ($m)

Change (%)

Total Group Revenue

330.4

312.8

+5.6

Net Profit After Tax

20.0

16.2

+23.5

KFC Sales

241.5

237.0

+1.9

Pizza Hut Sales

48.4

47.9

+1.1

Starbucks Coffee Sales

25.0

25.1

-0.3

Carl’s Jr Sales

14.3

1.9

+662.2

Table 3: Revenue of Restaurant Brands from its franchises

The above table shows the split up of the revenue of each brand. Increased percentage of sales generated by KFC and Pizza hut of 1.9% and 1.1% respectively. And there is a decrease in revenue generated by Starbucks. The interesting fact is that the newly opened stores of Carl’s Jr. are generating Sales which is 662% increase in the revenue compared to previous years. The operating cash flow for the company is $32.7 m and the company’s bank debt has dropped to $8.1 million.

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BANK DEBT

$8.1m

FULL YEAR DIVIDEND

97,871,090 shares issued

UP 3.1% 20.4 CENTS PER SHARE

Figure 3: Bank Debt and dividend of the company (restaurantbrands.co.nz)

The following data shows the incremental share value from 2008 till 2014. The earnings per share have increased from 16.5c to 20.4c through the years. Even though there was a drop in the value due to the earthquake, within 3 years it has increased to 20.4c. And the share price of Restaurant Brands is currently $4.02 which is pretty reasonable for the market. Net dividends distributed are 15,653.

2008

2009

2010

2011

2012

2013

2014

Earnings per share (full year)

8.6c

8.5c

20.1c

24.9c

17.3c

16.5c

20.4c

Ordinary dividend per share

6.5c

7.0c

12.5c

17.0c

16.0c

16.0c

16.5c

Table 4: Earnings and Dividends from 2008 till 2014 (restaurantbrands.co.nz)

C:\Users\Admin\Desktop\ChartImg.axd.png Figure 4: Stock Price for Restaurant Brands (restaurantbrands.co.nz)

The below chart shows the profit margin of the company; in 2013 it is 5.2% and in 2014 it is 6% which shows the increase in its profitability. And the debt to asset ratio shows the company’s leverage; in 2014 its 21%. For a food based industry these ratios are good. The company’s current ratio is 0.16 which is pretty bad since the company is franchise based, leases most of the stores and for a food based industry there is lot of taxes.

Figure 5: Profit Margin and company’s leverage

Conclusion and Recommendation

Restaurant Brands is a well established company which has put itself in a position to grow and it is now well rooted. Opening stores like Carl’s Jr brought profit in couple of years and the company shows expansion. According to the financial reports the company is doing well and it is aiming towards constant increase in income. To be a part in one of the world’s best restaurants like KFC and Starbucks can bring pride and income for Portfolio Managers Ltd.; and Restaurant brands can definitely be a pathway for this new venture. The potential stand of Restaurant Brands in the market and the company’s profitability and financial strength; it can be concluded that Portfolio Managers Ltd. can purchase shares and invest in Restaurant Brands.

References

  1. Restaurant Brands (2015). Available at: http://www.restaurantbrands.co.nz.

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