Restaurant Brands International Inc. (TSX: QSR) is one of the world’s largest quick service restaurant companies with approximately USD 34 billion in annual system-wide sales and 27,000 restaurants in more than 100 countries and U.S. territories. RBI owns three of the world’s most prominent and iconic quick service restaurant brands – TIM HORTONS, BURGER KING, and POPEYES. 

Key highlights

• Cementing footprints in France: 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. It also aims to open hundreds of restaurants across multiple formats over the coming years.

• Revival in demand: The company reported a robust resurgence in demand in Q3FY21, backed by 10.8% 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 11.1% and 12.3%, respectively. During the third quarter, the firm claimed that 97% of its restaurants were open around the world, up from 94% in Q3FY20.
  

• Improved 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 4,193 million and USD 1,664 million, respectively, in 9MFY21, representing y-o-y increase of 16.15% and 22.08%. In addition, the company generated USD 1,185 million in free cash flow in 9MFY21, compared to USD 537 million in 9MFY20.
  

• Acquiring Firehouse Subs: The company recently announced that it had struck an agreement to buy Firehouse Subs for USD 1.0 billion in an all-cash deal. The brand is a strong and growing competitor in the USD 30 billion US QSR sandwich sector, with projected revenues of USD 1.1 billion in 2021. Additionally, Firehouse Subs is estimated to generate approximately USD 50 million in adjusted EBITDA in 2021, which would instantly boost RBI's diluted net earnings per share.

Risks associated with 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 overview of Q3 2021 (In millions of USD)

Source: Company filing

• In Q3 2021, the company reported total revenues of USD 1,495 million, jumped from USD 1,337 million in the previous corresponding period. The surge was driven by higher income from system-wide sales in all the brands, supported by the addition of innovative items to its portfolio, coupled with the rapid adoption of the digital channels.
• Total operating costs and expenses came at USD 962 million, stood higher from USD 920 million in the previous corresponding period (pcp). The quarter witnessed a higher cost of sales, coupled with a surge in general & administrative expense & advertising expense.
• Income from operations stood at USD 533 million, compared to USD 417 million in pcp, supported by higher revenue, partially offset by an increase in total operating costs and expenses.
• The company reported its net income at USD 329 million, significantly higher than USD 223 million in pcp.
  

Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine Group 

Stock recommendation

The financial success of Q3 2021 reflects the value of having a diverse business model across three brands and in over 100 countries. Overall, the company's system-wide sales growth accelerated from the previous year, thanks to gains in the Tim Hortons Canada business as well as strength in each of the brand's international businesses. Recently, the company announced that it would acquire Firehouse Subs, which is estimated to generate around USD 50 million in Adjusted EBITDA in 2021. This would boost RBI's diluted net profits per share immediately, which is a significant positive. 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 current market price of CAD 70.84 at 9:35 am Toronto time as on January 14, 2022.

*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 January 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.