Restaurant Brands slices pizza loss

BY NICK CHURHOUSE
Last updated 05:00 02/12/2009
RBD 3.740 0.00 0.00%
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Chicken chain slices pizza loss
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GREAT EXPECTATIONS: Restaurant Brands' share price is up 11 per cent on a $5.8 million boost in profit expectations. The company owns KFC, Pizza Hut and Starbucks.

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Restaurant Brands' share price is up 11 per cent on a $5.8 million boost in profit expectations, showing it is managing to shake its pizza demons.

The 16c gain in share price yesterday took the stock to a four-year high, closing on $1.62.

Stronger sales, mainly through its KFC franchises, had given the company greater heart about its result for the year to February 2010.

The company, which also owns Pizza Hut and Starbucks, will post its third-quarter sales results in two weeks.

The revised profit forecast was up 50 per cent to $17.5m.

Craigs Investment Partners broker Malcolm Brown said the turnaround was significant and surprising.

The company had come back from a dark place in recent times, with one of the strongest share price performances on the NZX 50 this year, he said.

"They were an absolute dog.

"This has taken me by surprise."

A meeting with a key shareholder and Restaurant Brands' chief executive Russel Creedy and chief financial officer Grant Ellis in the past couple of months had shown no hint of what to expect, Mr Brown said.

The key difference was that the company had stopped "haemorrhaging" money through Pizza Hut.

"They've increased their margins obviously somewhere along the line."

Pizza Hut was "not out of the woods yet", but margins were better through increased efficiencies and greater sales volumes.

The KFC brand had been growing fast and the reinvestment in upgrading half of their stores nationwide had turned directly boosting sales.

He estimated the average spend per store was "well in excess" of $1m with plans to upgrade another 35 per cent of stores over the next three years.

Growth in sales over the past few months had put their previous estimates to shame.

The long-term strategy for the pizza chain was to sell out of remote regional areas and focus on more central properties.

"There's some good signs the business is getting back on track," Mr Ellis said.

He said the steady growth in the share price, up from 60c a year ago, was pleasing for investors.

"It's good to see those that stuck with us are getting some value."

Mint Asset Management portfolio manager Shane Solly said the resurgence in fortune for Restaurant Brands was an example of good strategic reinvestment in their core business.

"They appear to be getting their products right, and now they are seeing the benefit of that in what is not exactly the most buoyant environment."

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He said the business was in a good position to keep growing, but it was hard to know whether that would happen at the same speed as it has done.

"In the current environment not every company is going to be able to deliver ongoing growth."

- The Dominion Post

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