Forum Archive Index - November 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Macdunk,
 

>This Is a great
>lesson for people that fall In love with a company, or
>system that cant admit they are wrong and get out.    
>Every share has a bottom line, when It hits that
>woops I was wrong get out.
>

Of course every share has a bottom line for any investor.  But I 
measure my 'bottom line' by a company's own performance statistics.

So here is my 'bottom line' for RBD.

1/ I would consider selling if the ability to service the debt gets out of 
hand 'long term'.  I will tolerate a one year glitch.   If they can't pay off 
all the long term debt by directing all their profit to doing so within ten 
years then I will start to worry.  

Assuming the forecast $9.5m profit becomes entrenched, that means 
they can pay of $95m of long term debt.  Actual position is $30m of 
long term debt.  So they are well covered.  RBD is a low debt 
company.  The long term profit would have to fall towards $3m per year 
before I became concerned.

2/  I would consider selling if the ROE slipped below 15%.  Actual 
equity is $49.5m.   An ROE of 15% means a profit of $7.4m.   As you 
can see $9.5m is well above that.

3/  I would be concerned if RBD was relegated from their position 
amongst the top three takeaway food chains in the country.  I think 
McDonalds is still number one, RBD number two and number three is, 
well so far behind so as not to matter.    So it doesn't look like much 
chance of that happening.

Sorry that was three reasons to hold my shares.  Make that an 'upsize' 
('triple bottom line').

>
>Lets get back to RBD what exactly Is wrong with the company why 
will
>It eventually go under unless they drastically change the way they
>operate 1   A company that owns the premises can undercut the
> opposition they dont.{Lots of competition Undercutting them}. 
>

Fish and chips undercuts them, but that has always been the case.  
Now please tell me who else undercuts them?

>
>2 The secret recipe Is at least 40 yrs old Its time for a change. 
>

Remember 'New Coke'?    Fiddling with the core recipe would be a 
disaster.     In case you hadn't noticed there are alternative flavours 
offered from time to time e.g. hot and spicy.  So they are doing what 
you suggest.

>
>3 The food Is yuck other places better tastes 
>

That is a matter of opinion.  The salty spicy KFC is not to everyones 
tastes for sure.    Some really like it.

OTOH Pizza Hutt is fairly conservative I would of thought.  Not the sort 
of taste to rave over, but not the sort of taste to upset people either.    
You could say it is a middle of the road effort, but that matches the 
'middle of the road' market they aim for.

>
>4 The younger generation where the money Is are Ignored
> 

KFC/ Pizza Hutt don't aim to be 'hip' that is true.  But the younger 
generation has never been known for liking 'the establishment'.

>
> 5 There business skills are non existant.{on a
> level with fletcher forest}. 
>

The head of KFC left and a new man has been appointed.  The new 
man has only been in the job a few months.  It is far too early to judge 
Rod de Vries at the helm of KFC.  Certainly his track record is good 
from Pizza Hutt.

>
>6 People are more health aware they dont
> play along with health food alternatives. 
>

And the 'healthier' takeaways that sell more than KFC are?    Just 
because people say that want healthier food doesn't mean they always 
behave that way. 

>
>7 Fast food Is a very
> competitive field. The best wins the worst goes under. 
>

Takeawy food is actually a remarkably stable industry.    The only 
chain I can think of that 'went under' was 'Georgie Pie'.  hardly enough 
to prove your 'rule of thumb'.

>
> ps there are too many opportunities to worry about dogs.
> 

Dead wrong.  The only company that comes close to RBD on earnings 
yield is WRI.  These two are absolute standouts for the income 
investor.  I doubt if you can name a single opportunity as good as 
these two.

Still think I haven't done my homework Macdunk?   Still think I'm in 
love?   You see I do have my own bottom lines, but I pay no attention 
to the ravings of Mr Market, manic depressive fool that he is.

SNOOPY

discl: hold RBD.  Will look to free up some funds in a couple of months 
so that I can buy more.






SNOOPY


--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."




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