By Jenny Ruth
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Wednesday 28th April 2010 |
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Despite the sharp rise in Restaurant Brands' share price, reflecting the improving profitability and outlook for its KFC chain, "this bird still has wings," says First NZ Capital analyst Sarndra Urlich.
"While Restaurant Brands faces some resistance along the lines of investors coming too late to the story, we would argue this line of argument is misplaced," Urlich says.
Although the company is forecasting its net profit for the year ending February 2011 will be slightly in excess of $20 million, she expects it could be closer to $24 million and has raised her forecast from $22.1 million to $23.8 million.
"Not only will KFC benefit from the lagged impact of the 2010 store transformation, it will also reap the benefits of the robust 2011 transformation program," Urlich says.
"Add to the mix some margin upside (from the full impact of chicken savings) and the story is attractive." The key downside risk is the 2011 transformation program disrupts sales but this hasn't been a problem to date with 50% of the chain now transformed, she says.
"In light of the current momentum, we believe that 2011 headline sales growth could actually outstrip that of 2010."
The company is also making slow progress with its struggling Pizza Hut chain.
BROKER CALL: outperform.
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