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Restaurant Brands continues its slow downward slide

Friday 10th October 2003

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If Restaurant Brands were a pizza it would probably be a spicy chicken number. The problem is the chicken doesn't taste quite as good as it should.

The fast-food operator this week reported a 15% drop in half-year net profit mainly due to poor KFC sales in New Zealand and Australia.

Investors have by no means shunned the stock, despite a number of challenges facing the company.

The shares gained 9c to $1.34 following the $4.3 million profit announcement and the company is a favourite of traders on internet chat sites.

In its latest research note, ABN Amro maintains its hold recommendation on the stock while noting investor concern over the sustainability of Restaurant Brands' attractive dividend yield of about 11.5%.

Increasing competitive pressure combined with the resignation of former chief executive Jim Collier add further worry but ABN is confident the company can sustain the current dividend.

A replacement CEO is not expected for another three to four months.

A major concern for investors is the future growth potential of the company.

The company no longer views KFC as a mature division but sees further opportunity for organic growth in the New Zealand market.

However, same store sales have been negative for the past four quarters and the division is still coming to terms with the loss of former general manager Chris O'Reilly.

The company has done the hard yards in the past but it will be up to a new team to carry that through.

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