Daily ShareChat: Restaurant Brands

By Jenny Ruth

Wednesday 15th June 2011

Restaurant Brands' Pizza Hut chain "remains chronically underwhelming" but its earnings contribution is less than 10% of total group earnings, says Sarndra Urlich, an analyst at First NZ Capital.

Restaurant Brands' first quarter sales fell 4.4% but that was because Pizza Hut's sales fell 27.7%. Its main KFC chain's sales were up 2.8% with sales through stores open 12 months or more (same store sales) up 0.3%.

"KFC remains the key driver for RBD at 84% of total earnings. While this quarter was soft, it was certainly better than it could have been when you consider the very challenging comps it was up against," Urlich says. The company's previous first-quarter same-store sales rose 10.7%.

Promotions, including the widely reported "Double Down" burger helped boost sales.

Urlich has upgraded her earnings forecast for 2012 by 2.7% and her 2013 forecast by 2.2% on the strength of the KFC result. She has also raised her valuation of the stock from $2.55 to $2.63 and her 12 month target price from $2.70 to $280.

"Yes, we are only one quarter into full-year 2012, and the results are soft in absolute terms, but the run rate is better than expected, in our view."

The upgrades primarily reflect the successful rollout of new products which will lead to higher margins, Urlich says.

Rating: Neutral (from Outperform, reflecting the strength of the share price).

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