Restaurant Brands International Inc

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. 

Key Updates:

• An Income Play: At the last closing price (November 19, 2021), QSR shares were offering a lucrative dividend yield of ~3.70%, significantly higher compared to the Canada 10-Year government bond yield of 1.66%. Moreover, the company has a track record of consistent dividend payment over the past decade regardless of the economic cycle. Hence, a high yielding stock with a consistent dividend payment history will remain in the investor's limelight.

Dividend History. Source: REFINITIV, Analysis by Kalkine Group

• Strategic Acquisition: On November 15, 2021, QSR and Firehouse Restaurant Group Inc. announced that they had reached an agreement for QSR to acquire Firehouse for USD 1.0 billion in an all-cash transaction. The acquisition adds a strong and loved restaurant brand with attractive unit economics in a complementary category to QSR's existing family of iconic quick-service restaurants.
  

• Revival in Demand: In Q3FY21, the company reported a consolidated sales growth of 10.8%, against negative sales growth of 5.4% reported in the same period of the corresponding previous financial year. This was largely driven by an 11.1% growth in TH (Tim Hortons) segment, a 12.3% surge in BK (Burger King) sales and a 4.4% growth in PLK sales, respectively.

Source: Company report

• Solid Growth in Free Cash Flow: LTM free cash flow of the company surged by 35% to USD 1,452 million compared to USD 1,072 million reported in the same period of the corresponding financial year, driven by decent topline growth and margin expansion.
  

Q3FY21 Financial Highlights:

Source: Company report

• During the three months under consideration, the company reported decent growth in topline, with a ~12% increase in revenue to USD 1,495 million from USD 1,337 million reported in the same quarter of the previous financial year. The year-over-year increase in total revenues was primarily driven by greater system-wide sales in all of their brands.
• In Q3FY21, net income (attributable to common shareholders and noncontrolling interests) stood at USD 328 million, a jump of ~47% on a YoY basis, driven by increases in income from BK and TH segments and a favorable change in the results from other operating expenses (income), net.
• The Board of Directors of the company declared a dividend of USD 0.53 per common share. The dividend will be payable on January 05, 2022, to shareholders and unitholders of record at the close of business on December 21, 2021.

Risks Associated with Investment

The company is exposed to various risks, including the resurgence in COVID-19 cases, lockdown restrictions, and lower demand offtake during festival season. Further, QSR is also exposed to inflationary pressure on raw materials, supply chain bottlenecks, etc.

Valuation Methodology (Illustrative): Price to Earnings-based valuation

Stock Recommendations:

The highly efficient business model of the company once again generated strong free cash flow, enabling them to continue investing in their business while also enhancing shareholder returns through both dividends and recently expanded USD 1 billion share repurchase program. Further, the company is yielding higher amid a lower interest rate environment with a track record of consistent dividend payment over the past decade. Hence, we recommend a "Buy" rating on the QSR stock at the closing price of CAD 72.39 (November 19, 2021).

One-Year Technical Price Chart (as on November 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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