Robert Floyd Restaurant Brands International QSR-T HOLD Jan 15, 2009

Large array of brands including Burger Kind/Tim Hortons. Company debt loads are too high for preference. Good job at managing company through M&A - however would prefer other options in the market. 

They own brands, but some like Tim Horton's have fallen in quality. Also, they carry a lot of debt. Some of their brands are not that strong.

The valuation assumes there's no growth here, but that's not true. Their CEO is applying best practices that he used when running Domino's Pizza by improving digital sales as they expand overseas, but are not as focused on China as peers.

Not buying it now. For options, you could go out to the May $94 put and sell it for close to $4. If it pulls back, you're force to buy at $94. The implied volatility is decent. Pays a 3% dividend; you can get more yield by selling upside calls.

The valuation assumes there is no growth happening but there is. It is expanding, including overseas, but not focused on China like its peers. Has a new CEO from Dominoes which did very well.

Quality management lets you hold a name for a very long time. New chairman turned around DPZ, hired to do the same here. Hasn't yet happened, spending lots to remodel Burger Kings. Tim's and Popeye's doing well. Tough macro. Cheapest in the restaurant space.

Good business economics. Really strong brands that generate a lot of cashflow. His hangup is the balance sheet, it's not investment grade. In times of turmoil access to credit could be restricted, and acquisitions are not in easy grasp. Lots of value at 16x PE.

As the economic situation gets tighter, discretionary items get cut. Consumers may not want to cut, but they may have to. Unemployment in both Canada and US are ticking up, and any discretionary items will be impacted.

Trades at 20x EBIT over EBITDA, about normal. Shares are below a declining 200-day MA, but still above 200-week MA. Rising input costs of labour and commodities, as well as competition, have really held shares back. Question of saturation in Canada. Challenge to scale meaningfully outside NA. Franchise execution risk.

It has recently pulled back. The executive chairman did very well with Dominoes as their CEO and is moving the stock price up. He had to buy $30 million of stock with his own money for $200 million in compensation. Although his success with Dominoes is good for the stock, it hasn't moved up too much.

She's nervous about the consumer, particularly in Canada. Highly indebted consumer is being more cautious on discretionary spending. If it were just Tim's, she'd be OK with it because she likes the trade-down economics. Burger King is still closing stores, lots of competition and margin pressure.