Strong Brands to Revive Growth: Restaurant Brands International Inc. (TSX: QSR) is one of the world's leading quick-service restaurant companies with over 27,000 restaurants in more than 100 countries. The Group operates through its well-established brands like TIM HORTONS or TH, BURGER KING or BK, and POPEYES or PLK.

The Company reported that most of its restaurants were open in North America as at the end of the first quarter. However, more than half of its restaurants remained closed in Europe, Middle East, Africa and in Latin America due to COVID 19 crisis. The Group announced a quarterly dividend of US$ 0.50 per share, payable on June 30, 2020.

Q1FY20 Financial Highlights: QSR declared its quarterly results, wherein the Company reported total revenues of US$ 1,225 million, as compared to US$ 1,266 million in the previous corresponding quarter. The decline was primarily due to the slump in system-wide sales within TH and BK segment followed by a slide in supply chain income, which was partially offset by an increase in system-wide sales at PLK. Income from operation stood at US$ 389 million, lower than US$ 434 million in the previous corresponding quarter due to lower revenues, higher selling, general and administrative expenses, partly offset by lower cost of sales and Franchise & property expenses. Net income stood at US$ 224 million, as compared to US$ 246 million in previous corresponding quarter.

Q1FY20 Income Statement Highlights (Source: Company Reports)  

Valuation Methodology (Illustrative): Price/Cash Flow- based methodology

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The QSR stock corrected ~17% YTD due to the worldwide disruptions in business on account of COVID 19 crisis and shutdown of several franchises across the globe.  The stock offers an annualized dividend yield of ~4.23%, which looks attractive, looking at the current interest rate scenario. The management expects COVID-19 outbreak to negatively impact its business in Q2FY20. Despite challenges, Restaurant Brands International has ample liquidity (US $2.5 billion in cash & cash equivalent) which is likely to support the operations. Amidst the current crisis, the QSR reported a significant 32% y-o-y growth in system-wide sales from its POPEYES segment led by the Chicken Sandwich sales. As people stay indoors, we expect steady growth of sandwich and burger products, followed by a revival of the supply-chain segment in the coming quarters. Also, easing of lockdown across the globe is expected to push the demand in the coming quarters. We believe, most of the negatives have been priced in the stock and expect an upswing in business as demand rises. We have valued the stock using Price to CF-based relative valuation and considered Chipotle Mexican Grill Inc. (NYSE: CMG), Yum Brands Inc. (NYSE: YUM), Domino's Pizza Inc. (NYSE: DPZ), as peer group and arrived at a target price which implies a potential upside in double-digit (in percentage terms). Hence, we recommend a ‘Buy’ on QSR stock at the closing price of CAD 68.66 as on May 01, 2020.

QSR One-Year Daily Price Chart (Source: Thomson Reuters)

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