Restaurant Brands International Inc.

Restaurant Brands International Inc. (TSX: QSR) is a leading global quick-service restaurant chain and derives its revenue primarily from the franchise royalties and distribution sales to franchisees. 

Key Highlights:

• Revival in operations : During the second quarter of FY21, the group reported a revival in its operations, as ~96% of restaurant remained open across the globe. Moreover, the company’s major sales came from the drive-thru, takeout and delivery, due to reduced dine-in options on account of restrictions on hours of operation. System-wide sales stood at USD 8,906 million in Q2FY21, as compared to USD 6,482 million in pcp, which reflects a y-o-y growth of 33% and 37.9%, respectively, from Tim Hortons (TH) and Burger King (BK) segments. Notably, the total resorting count at the end of Q2FY21 stood at 27,403, as compared to 27,059 in Q2FY20.
  

• An income Play: Despite the challenging operating environment, the company reported consistent dividend payments, supported by stable cash flows. The company operates with the leading brands within the Quick Service Restaurant (QSR) segment and has a worldwide presence along with an impressive consumer base. Hence, we expect the cash flow generation to continue in the coming future. Notably, the stock of QSR carries a dividend yield of ~3.3%, which looks decent considering the persisting interest rate scenario.

10 years Dividend payment, Source: REFINITIV

• Ample Liquidity: As on June 30, 2021, the company reported cash and cash equivalents of USD 1,762 million and USD 998 million under the senior secured revolving credit facility. The current liquidity level seems to be sufficient to withstand the short-term and long-term capital needs.

Q2FY21 Financial Highlights:

• QSR announced its quarterly result, wherein the company posted total revenues of USD 1,438 million, surged from USD 1,048 million in the previous corresponding period (pcp). The increase was driven by higher income from system-wide sales in all the brands, supported by the addition of quality menu items, coupled with rapid adoption of the digital channels.
• Total operating costs and expenses stood at USD 950 million, as compared to USD 805 million in Q2FY20. Advertising expenses stood slightly higher at USD 238 million, as compared to USD 203 million in pcp, while franchise and property expenses came lower (USD 121 million v/s USD 132 million in pcp). Income from operations surged to USD 488 million from USD 243 million in Q2FY20.
• The company reported its net income at USD 391 million, jumped from USD 164 million in Q2FY20.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risk: Further imposition of restrictions may 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.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The group reported a decent quarterly result. Adjusted EBITDA rose to USD 1,057 million in H1FY21, from USD 802 million in the previous corresponding period, supported by higher profitability from Tim Hortons (TH) and Burger King (BK) segments. Moreover, the company reported a growth in cash from operation of USD 745 million in H1FY21, significantly higher than USD 196 million in pcp. We have valued the stock using P/E-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Darden Restaurants Inc, Mcdonald's Corp etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 79.93 on August 06, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 06, 2021). Analysis by Kalkine Group

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

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