Restaurant Brands operates the KFC, Pizza Hut and Taco Bell brands in New Zealand. Photo / Paul Estcourt
A year ago, Restaurant Brands’ market capitalisation stood at $1.82 billion. Today, the company is worth just under $770 million. How has more than a billion dollars disappeared?
Sure, the entire market has sunk over this time, but Restaurant Brands’ fall is still well below the drop that the NZX50 has experienced over the past year.
One analyst, speaking off the record, noted the loss of long-serving key management. In September, Restaurant Brands - whose brands include KFC, Pizza Hut and Taco Bell - announced that CEO Russell Creedy would retire at the end of March, with CFO Grant Ellis following him out the door at the end of May.
“That just creates uncertainty,” noted the analyst.
The whole food and beverage sector is under pressure from higher labour costs, particularly with the minimum wage rising sharply in recent years and the cost of raw ingredients also climbing with inflation.
Both Forsyth Barr and Jarden analysts this week downgraded their target price for the company after it released its full-year result, although they retain a neutral rating on the stock.
Forsyth Barr dropped its target price from $7.55 to $7.30, while Jarden went even lower, from $7.15 to $7.
Forsyth Barr analyst Margaret Bei noted that Restaurant Brands was trading at the bottom of a range of peers which included Collins Food Group, Wendys, Dominos, Yum!, McDonald’s and Starbucks.
Bei believed this reflected the company’s position as a franchisee, unlike its peers, which were mostly brand owners.
But she said Restaurant Brands had demonstrated an ability to adjust its prices without materially impacting demand. “We anticipate there is scope for further increases.”
Bei said the fast food company’s offerings were likely to be resilient despite the economic downturn but cost pressures may prolong its margin recovery.
“Interest costs are likely to remain higher for longer as debt has increased materially.”
Jarden analysts Guy Hooper and Nick Yeo said that while the company had experienced a meaningful share price re-rating over the past year, they viewed this as fair.
“In our view it reflects a combination of the wider market multiple compression for growth companies and a reassessment of the level of expected earnings growth.”
Restaurant Brands has paused its Taco Bell rollout plans due to increasing building costs and brought back its dividend. Hooper and Yeo said they viewed these decisions as negative signals for store growth in the near term. The dividend payout rate was also lower than in the past at 50 per cent of net profit compared to more than 80 per cent of net profit before the company paused dividend payments to focus on growth.
“Whilst we consider RBD [Restaurant Brands] to be a well-run business with a track record of ability to execute its strategy of growth through store expansion and acquisitions, we view the risk-reward on future execution upside as fair at the current share price level.”
More than 2000 Sharesies users have already registered their interest in having a savings account with the online investment platform.
Sharesies announced it would offer the service in its newsletter this week.
Sharesies general manager investing and saving, Scott Nixon, said it saw savings accounts as a complementary retail product that could sit alongside its investment proposition.
“With the rise in interest rates over the last year and forecast to head higher, we think offering a savings account to our customers is the next natural step for Sharesies.”
But the company doesn’t have a banking licence or a non-bank deposit taker’s licence so the money will have to be held on trust with a major bank.
Stock Takes will be keen to know what rate will be offered and whether it will be better just to keep the money in a bank directly. A Sharesies spokeswoman said details were yet to be finalised, but it was committed to providing a competitive interest rate.
Nixon didn’t give a timeframe for the launch of the accounts but said they would be available soon.
As MediaWorks CEO Cam Wallace announced he was moving on to greener pastures at Qantas this week, it seems the company’s owner is also looking for other opportunities.
US hedge fund Oaktree Capital has told clients it plans to raise up to US$10 billion for a new fund that will finance large private equity takeovers.
According to the Financial Times, the fund will offer loans of about US$500 million or more for leveraged buyout groups to be used to fund corporate acquisitions. The move comes at a time when the major Wall Street banks are cutting staff and the number of loans they are willing to give to private equity firms.
Oaktree will be hoping its new investments pan out better than its foray into Mediaworks.
Oaktree Capital became a Mediaworks debt holder in 2012, buying $125 million of the group’s outstanding loans at a reported discount of 50 per cent.
That was converted to equity when the media company’s lenders seized control, and pushed out former owner Ironbridge Capital in 2013. It became a full owner in 2015, buying out the minority shareholdings of rival private equity firms TPG Capital and Bain Capital.
In recent years Mediaworks has been selling assets, including the company’s former premises which are now leased back. In 2021 its TV channels were sold to global broadcasting giant Discovery.
Part of Wallace’s job was to sell the company but attempts have been unsuccessful so far. Interest from Sky TV was scuppered when shareholders responded negatively to the news and plans for an NZX listing were also put on ice.
In January, Mediaworks told staff that up to 90 jobs could be cut. The company’s 2022 financial accounts show it made a net loss of $2.858m in 2021, although that was an improvement on its $4.834m loss in 2020.
Wallace entered into a long-term incentive scheme in October 2021, entitling him to a share of any sale proceeds and the ability to buy shares of the company at a discounted rate.
The accounts record the value of these options - entitling Wallace to 1.5 per cent of any sale price excess above $175m and the ability to buy 1.5 per cent of shares in the company for $300,000 - as presently being worth $2.2m.
But they also state that if an exit event did not occur before January 2023, Wallace had the option to sell 60 per cent of his shares back to the group based on an equity value of the group of $156m.
Property investor New Zealand Rural Land (NZL) is raising capital to help pay for its $63.7m foray into forestry, announced last October.
Should investors choose not to take up their rights, NZL said it was confident European investors would step into the breach now that the company is listed in Frankfurt.
The purchase will be partly funded by a one-for-three pro-rata rights issue at $1.00 per share, to raise about $38.5m.
Shares in NZL last traded at $1.04. The offer opened to institutional investors the week.
The retail component opens on Monday (March 6). In addition, $25.2m in debt will be raised via Rabobank, with total facility limits expected to increase to approximately $131.0m.
In October, NZL entered into an agreement to acquire up to 100 per cent of a forestry estate located in the Manawatū-Whanganui region in the North Island. The company, which debuted on the NZX in December 2020, said it had implemented a dual listing on the Frankfurt Exchange under the ticker 8UK.GR after requests from potential European investors.
In the past it has said that is seeking to broaden its international investor base. The company sees a dual listing in Frankfurt as a cost-effective venue to allow this.
”NZL has received indications of interest from a recent European roadshow in Germany, Luxembourg and Switzerland which provides the board of NZL with confidence that should shareholders not wish to take up their rights in NZL that the company can access capital, expand its asset base as planned and further broaden its share register,” it said.
The forest estate is made up of five individual properties with a total area of about 2383ha, which will be leased to New Zealand Forest Leasing for 20 years.
Post-acquisition, NZL will own 14,093ha of rural land with a 12.1-year weighted average lease term by value, with 100 per cent occupancy across eight tenants.
At the time of announcing the acquisition, NZL said the purchase would be funded through a combination of debt and equity. The company this week recorded a net profit after tax of $5.3m for the financial half-year to December 31, 2022. The results cover the period from July 1, 2022, to December 31, 2022, following a change in balance date.
Milford Funds Management has cleaned up at the Morningstar Awards again this week, taking the overall fund manager of the year title and the KiwiSaver fund manager of the year.
Devon Funds Management won the domestic equities manager of the year for its dividend yield fund and transtasman fund, while Colchester Global Government Bond was named the best fixed-interest manager.
There was no winner of the international equities award category, with Morningstar saying there were no eligible candidates demonstrating suitable achievement across each of its three award categories.
Demand for bonds may well stay strong, but there's a catch.