Restaurant Brands International Inc. (TSX: QSR) is one of the world’s largest quick service restaurant companies with approximately USD 35 billion in annual system-wide sales and 28,000 restaurants in more than 100 countries and U.S. territories. It owns three of the world’s most prominent and iconic quick service restaurant brands – TIM HORTONS, BURGER KING, and POPEYES. 

Key highlights

• Boost in demand: The company reported a robust resurgence in demand in Q1 2022, backed by 14% year-over-year rise in System-wide Sales growth. Tim Hortons and Burger King, the company's main brands, saw y-o-y growth of 10.0% and 20.0%, respectively. During the quarter, the group claimed that all its restaurants were open around the world.

• Enhanced financial metrics on a year-to-date basis: The company's top-line and profitability have grown steadily year-to-date, indicating a demand rebound, which is a critical positive. Revenue and adjusted EBITDA were USD 1,451 million and USD 530 million, respectively, in Q1 2022, representing y-o-y increase of 15% and 10%. In addition, the company generated USD 295 million in Adjusted net income in the same period, compared to USD 257 million in pcp. These elevated results were mainly due to record first quarter new restaurant openings, and the highest level of digital engagement the company witnessed from guests across its home markets.

• Cementing footprints in France and South Korea: Recently, the group’s brand the Popeyes ® and leading French restaurant group made an agreement to develop and grow the Popeyes brand in France and Monaco. Moreover, it made an agreement with South Korean’s Silla Group and aims to open hundreds of restaurants across multiple formats over the coming years.
  

• Elevated LTM Free Cash Flow: In Q1 2022, the company reported its cash from operations at USD 234 million, against USD 266 million in the previous corresponding period. The decrease was driven by an increase in cash used for working capital, partially offset by an increase in segment income in our TH and BK segments. However, on LTM basis its free cash flow increased phenomenally to USD 1,593 million, against USD 938 million in pcp.

• Industry leaping margins: Despite the unrest environment, the Company maintained its pace and witnessed spirited performance across its operating margin profile in Q1 2022. The Company is continuously working closely to carry this winning momentum, which is appreciable. Also, its margins are leaping the industry median numbers on all fronts, another significant plus.

• Consistent dividend distribution: Given the strength of a business over the past number of quarters, strong balance sheet and solid cash flow, the company has paid a consistent dividend. Recently, on April 6, 2022, the company paid a dividend of USD 0.54 per common share. The stock carries an attractive dividend yield of 4.11%, which is quite impressive for the investors with a long-term horizon amid the current economic scenario.

Source: REFINITIV, Analysis by Kalkine Group

• Ample Liquidity and prudent capital management: At the end Q1 2022, the company reported strong liquidity of USD 1,893 million, which includes a cash and cash equivalents balance of USD 895 million along available credit of USD 998 million. Based on its current level of operations and available liquidity, the management feels that this liquidity is sufficient to fund the current obligations, debt service requirements and capital spending over the next twelve months.

Risks associated with investment 

Any further imposition of restrictions would likely impact the company’s sales volume and would dampen the overall performance. Moreover, the company added new stores in the recent past, and a slowdown in operations would hinder the company’s return ratios. 

Financial overview of Q1 2022 (In millions of USD)

Source: Company Filling 

• Strong sales: The company’s total sales reached USD 1,451 million in Q1 2022, an increase of CAD 191 million or 15% over CAD 1,260 million in Q1 2021. This increase was mainly due to record first quarter new restaurant openings, and the highest level of digital engagement.

• Rise in operating cost and expenses: Total operating costs and expenses in Q1 2022 stood at USD 1,001 million, higher from USD 818 million in the previous corresponding period. The quarter witnessed a higher cost of sales, coupled with a surge in general & administrative expense & advertising expense.

• Steady Income from operations: In the reported period of Q1 2022, the group’s income from operations stood at USD 450 million, compared to USD 442 million in pcp, supported by higher revenue, partially offset by an increase in total operating costs and expenses.

• Flat net income: The company reported its net income at USD 270 million almost flat, compared to USD 271 million in pcp. However, net income attributable to common shareholders increased to USD 183 million against USD 179 million in pcp.

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 43.57% of the total shareholding. Capital World Investors and Pershing Square Capital Management, L.P. hold the company's maximum interests at 12.14% and 7.75%, respectively. The company's institutional ownership stood at 85.28%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): EV to EBITDA based Valuation Metrics 

Stock recommendation

The company's Q1 2022 results represent the hard work of its excellent franchises, which has accomplished significant milestones such as a strong resurgence in comparative sales, record first quarter new restaurant openings, and the group's greatest level of digital interaction from guests throughout its home markets.

Tim Hortons Canada and Burger King International both achieved double-digit comparable sales growth in the first quarter, while Burger King U.S. continues to set the groundwork for long-term, sustainable development. Furthermore, the group's kick start in new restaurant openings, as well as development at Tim Hortons and Popeyes, gives them confidence to accelerate unit growth in 2022. Furthermore, the company offers industry-leading operating margins and a sizable dividend yield, both of which are significant advantages. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the last closing price of CAD 67.65 as on May 6, 2022.

One-Year Technical Price Chart (as on May 6, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid on May 9, 2022, price as well. 

Technical Analysis Summary

Disclaimer

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