Opinions
Ryan Bushell
Pizza Pizza Royalty
PZA-T
WAIT
May 24, 2024
Stock price when the opinion was issued
You might be interested:
PZA is a $457.9M company that pays a 6.4% yield. Its performance has been quite resilient over the last few years, and it now trades at a 14.6X forward earnings multiple. PZA operates as a royalty company that collects stable royalty earnings from the franchisee and pays out almost all of its cash flow as distributions. Its balance sheet is decent, with net debt of $39.8M, strong profit margins, and recent sales growth of ~13%. Going forward its sales and earnings are expected to grow in the high-single digits this year, and then ~3% to 5% thereafter, along with inflation. Although growth is not that fast, it is stable, and predictable in earnings and distribution payments. Overall, we like this name for income purposes.
Unlock Premium - Try 5i Free
The fast food chain is as ubiquitous as Starbucks or Tim Horton's in Canada, but flies under the radar of Bay Street. Only one analyst covers PZA, but rates it a buy. What's to like? PZA pays a 6.3% dividend yield which the company increased 3.3% three months ago. Its last quarter topped expectations, while it beat EPS in the prior three. Beta is a steady 0.99. During the first nine months of 2023 same-store sales rose 9.8% while EPS climbed 12.4%. Caveats: average daily volumes are only 23,819, and the company has no moat, though it is an established brand with locations everywhere.
PZA has had a slight downturn over the past few months driven by concerns on fourth quarter results. Q4 highlighted slower same-store sales growth at 4% for the quarter compared to 13% in the same period a year prior. This prompted the initial dip, and Q1 results displayed a similar trend. Same-store sales growth in Q1 of 2024 was 1.7%, down from 13.6% in the same period a year prior. Sales growth concerns are the primary diver behind some of the stocks recent weakness.
Unlock Premium - Try 5i Free
Same-store-sales declined again in Q2 paired with royalty pool sales and adjusted earnings declining. We want to monitor the declining SSSG trends, and if they can flatten out over the second half of the year, we would then be comfortable stepping in.
Unlock Premium - Try 5i Free
Dividend yield a little high (~7%) - can be a worry. Would wait before investing. Not sure how strong consumer sentiment is. If economy falters - would be a good time to buy.