Restaurant Brands International Inc.

Restaurant Brands International Inc. (TSX: QSR) is one of the world’s largest quick service restaurant companies with approximately USD 32 billion in annual system-wide sales and 27,000 restaurants in more than 100 countries and U.S. territories. QSR owns three of the world’s most prominent and iconic quick service restaurant brands – TIM HORTONS, BURGER KING, and POPEYES. 

Key highlights

• Restaurants remained open at a healthy rate: At the end of March 2021, 95% of the company's restaurants were open throughout the world, with almost all of them in North America and Asia Pacific, and around 925 and 84% in Europe, the Middle East, and Africa and Latin America, respectively. The firm is projected to produce significant cash flows as a result of the increased number of shop reopening.
• Popeyes brand is on expansion: The Popeyes brand of the company and India's Jubilant Foodworks Limited recently announced fresh plans to create and establish hundreds of Popeyes restaurants across India, Bangladesh, Nepal, and Bhutan. The company is rapidly expanding the brand, with ambitions to establish hundreds of restaurants in the UK over the next several years, as well as in Mexico starting in 2021.
• Increase in free cash flows: The company’s robust operations lead it in achieving higher cash from operating activities, which stood at USD 266 million in the reported period. It also clocked higher free cash flows of USD 251 million in the reported period, highest for Q1, in the last three years.
• Steady dividend distribution:The group continues with the track record of dividend distribution. Recently, it declared a dividend of USD 0.53 per unit payable on July 7, 2021. Moreover, at the last closing price, the stock was offering a dividend yield of 3.1%, which is decent considering the current interest rate scenario.
  

Financial overview of Q1 2021 (Expressed in millions of USD)

• In Q1 2021, the company posted a revenue of USD 1,260 million, against USD 1,225 million in the previous corresponding period. The rise in revenue was primarily driven by a favorable FX Impact of USD 24 million.
• Income from operations stood at USD 442 million, compared to USD 389 million in Q1 2020. The increase in operating income was primarily due to higher income, partially offset by higher advertising expenses.
• The company reported net income attributable to shareholders at USD 179 million in the reported quarter, compared to USD 144 million in pcp. The rise in net income was primarily due to the reasons discussed above.
  

Risks associated with investment

The company’s results can be adversely affected by unforeseen events, such as adverse weather conditions, natural disasters, pandemics such as the COVID-19, or other catastrophic events. The second wave of COVID-19 might lead to social distancing measures and store closures again, which could lead to lower royalty income for the company.

Valuation Methodology (Illustrative): Price to Earnings 

Stock recommendation

The COVID-19 global pandemic appeared to influence the group's performance this quarter. The group did, however, manage to make strides in reopening shops that had been partially closed, which would help to boost sales. The corporation is continuing to make strides toward its long-term goals, which include expanding the Popeyes name. The company is rapidly expanding the brand, with plans to open hundreds of restaurants in the United Kingdom and Mexico in 2021, as well as a hundred in the Indian Subcontinent, which would help them generate more cash in the immediate future. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 83.37 on June 15, 2021. We have considered Domino's Pizza Inc, Mcdonald's Corp, Starbucks Corp, etc. as the peer group for the comparison.

One-Year Price Chart (as on June 15, 2021). Source: Analysis by Kalkine Group

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

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