Daily Share Chat: Restaurant Brands

By Jenny Ruth

Monday 2nd November 2009

Restaurant Brands' KFC store transformation program "continues to deliver extraordinary returns," says Macquarie Equities analyst Warren Doak.

The average increase in sales in the first year of a transformed store is 19%, he says. That, and an acceleration of the program, coupled with new menu offerings and new store openings, are expected to underpin strong same-store sales growth for at least the next three years," Doak says.

"Management's focus is now unashamedly 100% on the core KFC business with management expressing great confidence in the medium-term outlook."

Doak says his forecasts are very conservative relative to management guidance but, even so, Restaurant Brands "continues to trade on remarkably undemanding valuation multiples."

He is expecting net profit, excluding non-trading items, will come in at $16.9 million for the year ending February 28, a 39.5% increase on the previous year.

Doak says the Pizza Hut chain showed a marked improvement in operating performance in the first half but the company remains committed to a controlled sell-down.

The Starbucks chain proved to be the most economy-sensitive brand and its first-half performance was disappointing. "A new management team and a renewed focus on core operations is expected to underpin an improved second-half performance." Doak has a $1.70 per share 12 month price target.

BROKER CALL: Macquarie Equities rate Restaurant Brands as outperform.

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