New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Restaurant Brands (RBD)</h2>
<p><strong>1H20 sales — Initial Impressions: KFC NZ the standout</strong></p>
<p>Restaurant Brands (RBD) reported robust 1H20 Store EBITDA of NZ$72.6m, up +5.0% on the prior comparable period, albeit slightly behind our expectations. KFC New Zealand continues to be the standout, beating expectations and driving growth. Offsetting a strong period in both KFC New Zealand and KFC Australia, all other divisions disappointed relative to our expectations with Pizza Hut New Zealand particularly weak. Pizza Hut NZ saw significant EBITDA margin decline, driven by a combination of operating deleverage, increasing cost of labour, and increases competitive pressures.</p>
<p>Although RBD’s core brands continue to deliver robust growth, trading at ~28x forward PE we believe significant earnings growth is priced in. We have an UNDERPEFORM rating.</p>
<p><strong>Outlook and our view&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</strong></p>
<p>KFC provided updated trading commentary upgrading FY20 NPAT (excluding non-trading items and the effect of NZ IFRS 16) guidance to growth in excess of +10% on FY19, implying greater than NZ$46m. This compares to prior guidance of “in excess of NZ$45m” and our FY20 NPAT forecast of NZ$47m.</p>
<p>We do not expect to make major net changes to our forecasts although mix changes in favour of KFC New Zealand are likely.</p>
<p><strong>Conference call 11:00am (NZT)</strong></p>
<p>RBD is hosting a conference call at 11:00am (NZT) Dial in details: 0800 122 364 (Australia – 1800 760 146), Conference ID number: 10002211</p>
<p><strong>RBD 1H20 divisional summary (local currency $m)</strong></p>
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 172.8pt;"></td>
<td style="text-align: center; width: 61.8pt;">1H19</td>
<td style="text-align: center; width: 59.4pt;">1H20</td>
<td style="text-align: center; width: 57.6pt;">%chg</td>
<td style="text-align: center; width: 63pt;">Forsyth Barr</td>
</tr>
<tr>
<td>KFC EBITDA (NZ$m)</td>
<td style="text-align: center;">37.0</td>
<td style="text-align: center;">41.8</td>
<td style="text-align: center;">12.9%</td>
<td style="text-align: center;">40.4</td>
</tr>
<tr>
<td>&nbsp;&nbsp; Margin</td>
<td style="text-align: center;">20.6%</td>
<td style="text-align: center;">21.6%</td>
<td style="text-align: center;">1.0ppts</td>
<td style="text-align: center;">20.9%</td>
</tr>
<tr>
<td>Pizza Hut EBITDA (NZ$m)</td>
<td style="text-align: center;">1.5</td>
<td style="text-align: center;">0.5</td>
<td style="text-align: center;">-65.5%</td>
<td style="text-align: center;">1.3</td>
</tr>
<tr>
<td>&nbsp;&nbsp; Margin</td>
<td style="text-align: center;">7.1%</td>
<td style="text-align: center;">2.7%</td>
<td style="text-align: center;">-4.4ppts</td>
<td style="text-align: center;">7.0%</td>
</tr>
<tr>
<td>Carl's Jr EBITDA (NZ$m)</td>
<td style="text-align: center;">0.7</td>
<td style="text-align: center;">0.8</td>
<td style="text-align: center;">13.6%</td>
<td style="text-align: center;">1.1</td>
</tr>
<tr>
<td>&nbsp;&nbsp; Margin</td>
<td style="text-align: center;">4.0%</td>
<td style="text-align: center;">4.2%</td>
<td style="text-align: center;">0.2ppts</td>
<td style="text-align: center;">6.0%</td>
</tr>
<tr>
<td>KFC Australia EBITDA (A$m)</td>
<td style="text-align: center;">14.0</td>
<td style="text-align: center;">14.8</td>
<td style="text-align: center;">5.7%</td>
<td style="text-align: center;">14.7</td>
</tr>
<tr>
<td>&nbsp;&nbsp; Margin</td>
<td style="text-align: center;">14.7%</td>
<td style="text-align: center;">14.9%</td>
<td style="text-align: center;">0.2ppts</td>
<td style="text-align: center;">14.8%</td>
</tr>
<tr>
<td>Hawaii EBITDA (US$m)</td>
<td style="text-align: center;">8.8</td>
<td style="text-align: center;">9.4</td>
<td style="text-align: center;">6.8%</td>
<td style="text-align: center;">10.5</td>
</tr>
<tr>
<td>&nbsp;&nbsp; Margin</td>
<td style="text-align: center;">13.1%</td>
<td style="text-align: center;">13.3%</td>
<td style="text-align: center;">0.1ppts</td>
<td style="text-align: center;">14.9%</td>
</tr>
<tr>
<td>Store EBITDA (NZ$m)</td>
<td style="text-align: center;">69.2</td>
<td style="text-align: center;">72.6</td>
<td style="text-align: center;">5.0%</td>
<td style="text-align: center;">74.2</td>
</tr>
<tr>
<td>Corporate Costs (NZ$m)</td>
<td style="text-align: center;">(16.8)</td>
<td style="text-align: center;">(18.5)</td>
<td style="text-align: center;">9.6%</td>
<td style="text-align: center;">(18.1)</td>
</tr>
<tr>
<td>Non-trading items (NZ$m)</td>
<td style="text-align: center;">(2.1)</td>
<td style="text-align: center;">(2.3)</td>
<td style="text-align: center;">10.4%</td>
<td style="text-align: center;">0.0</td>
</tr>
<tr>
<td>Total EBITDA</td>
<td style="text-align: center;">50.3</td>
<td style="text-align: center;">51.9</td>
<td style="text-align: center;">3.2%</td>
<td style="text-align: center;">56.0</td>
</tr>
</tbody>
</table>
<p>Source: Forsyth Barr analysis, company reports</p>
<p>Guy Hooper<br>Analyst, Equities</p>
<div>
<p>T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 5255<br>TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;0800 367 227<br>F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 8193<br>P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;PO Box: 5266, Wellington 6145<br>W: &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; &nbsp;<a href="https://foundry.smartkarma.com/www.forsythbarr.co.nz" target="_blank" rel="noopener">www.forsythbarr.co.nz</a><br>Twitter: @forsythbarr</p>
</div>

Restaurant Brands (RBD)
1H20 sales — Initial Impressions: KFC NZ the standout
Restaurant Brands (RBD) reported robust 1H20 Store EBITDA of NZ$72.6m, up +5.0% on the prior comparable period, albeit slightly behind our expectations. KFC New Zealand continues to be the standout, beating expectations and driving growth. Offsetting a strong period in both KFC New Zealand and KFC Australia, all other divisions disappointed relative to our expectations with Pizza Hut New Zealand particularly weak. Pizza Hut NZ saw significant EBITDA margin decline, driven by a combination of operating deleverage, increasing cost of labour, and increases competitive pressures.
Although RBD’s core brands continue to deliver robust growth, trading at ~28x forward PE we believe significant earnings growth is priced in. We have an UNDERPEFORM rating.
Outlook and our view&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
KFC provided updated trading commentary upgrading FY20 NPAT (excluding non-trading items and the effect of NZ IFRS 16) guidance to growth in excess of +10% on FY19, implying greater than NZ$46m. This compares to prior guidance of “in excess of NZ$45m” and our FY20 NPAT forecast of NZ$47m.
We do not expect to make major net changes to our forecasts although mix changes in favour of KFC New Zealand are likely.
Conference call 11:00am (NZT)
RBD is hosting a conference call at 11:00am (NZT) Dial in details: 0800 122 364 (Australia – 1800 760 146), Conference ID number: 10002211
RBD 1H20 divisional summary (local currency $m)
    



1H19
1H20
%chg
Forsyth Barr


KFC EBITDA (NZ$m)
37.0
41.8
12.9%
40.4


&nbsp;&nbsp; Margin
20.6%
21.6%
1.0ppts
20.9%


Pizza Hut EBITDA (NZ$m)
1.5
0.5
-65.5%
1.3


&nbsp;&nbsp; Margin
7.1%
2.7%
-4.4ppts
7.0%


Carl's Jr EBITDA (NZ$m)
0.7
0.8
13.6%
1.1


&nbsp;&nbsp; Margin
4.0%
4.2%
0.2ppts
6.0%


KFC Australia EBITDA (A$m)
14.0
14.8
5.7%
14.7


&nbsp;&nbsp; Margin
14.7%
14.9%
0.2ppts
14.8%


Hawaii EBITDA (US$m)
8.8
9.4
6.8%
10.5


&nbsp;&nbsp; Margin
13.1%
13.3%
0.1ppts
14.9%


Store EBITDA (NZ$m)
69.2
72.6
5.0%
74.2


Corporate Costs (NZ$m)
(16.8)
(18.5)
9.6%
(18.1)


Non-trading items (NZ$m)
(2.1)
(2.3)
10.4%
0.0


Total EBITDA
50.3
51.9
3.2%
56.0



Source: Forsyth Barr analysis, company reports
Guy Hooper Analyst, Equities

T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 5255 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 8193 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;PO Box: 5266, Wellington 6145 W: &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; &nbsp;www.forsythbarr.co.nz Twitter: @forsythbarr


Restaurant Brands (RBD): 1H20 Sales — Initial Impressions: KFC NZ the Standout

Restaurant Brands NZ

Restaurant Brands (RBD): 1H20 Sales — Initial Impressions: KFC NZ the Standout