Restaurant Brands International Inc. (TSX: QSR) is a leading global quick-service restaurant chain and derives its revenue primarily from franchise royalties and distribution sales to franchisees. The company has more than 29,000 stores across the globe.

Key Updates:

• Prominent Brand presence: The group operate through several well-established brands like Burger King®, Tim Hortons® and POPEYES®, and has a tremendous presence across more than 100 countries. Notably, the company’s System-wide Sales stood at USD 9,029 million, higher than USD 7,896 million in pcp, driven by higher traction from Tim Hortons® and Burger King® segments.

• Impressive dividend yield: The stock of QSR carries a dividend yield of ~4.434% on an annualized basis, which looks attractive considering the futuristic interest rate scenario. Moreover, the company paid a higher dividend of USD 241 million in Q1FY22, at par with USD 239 million in pcp. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity.

• Robust profitability margins: In Q1FY22, the company reported its EBITDA margin and operating margin of 34.3% and 31%, respectively, as compared to the industry median of 15.6% and 9.6%, respectively. This indicates better cost management on an operational level. The company also reported its net margin of 18.6% in Q1FY22, higher than the industry median of 3.6%.

Risk associated with the investment:

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 Highlights: Q1 FY22

Q1FY22 Income Statement Highlights (Source: Company Report)

• QSR announced its quarterly result, wherein the company posted its total revenue of USD 1,451 million v/s USD 1,260 million in pcp. This is driven by growth from each operating segments, driven by better demand dynamics.
• Total operating costs and expenses stood at USD 1,001 million versus USD 818 million in pcp, due to higher cost of sales and an increase in Franchise and property expenses.
• Income from operations stood slightly higher at USD 450 million, as compared to USD 442 million in pcp, supported by an elevated revenue, partially offset by an increase in input costs.
• Net income stood at USD 270 million in Q1FY22, at par with USD 271 million in pcp. This is due to a slightly higher income from operations as mentioned above coupled with an increase in income tax expense.

  Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation

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, which ensures sustainable cash flows to the firm. We have valued the stock using Price to Earnings-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Texas Roadhouse Inc, Wendys Co etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of QSR at the last closing price of CAD 62.71 on June 15, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 15, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITIV 

Technical Analysis Summary

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