Pizza Pizza Royalty (PZA-T)

Primarily an income vehicle (bond proxy). Hard to growth pizza growth for capital returns. Could be a good option for dividend investors. ~7% income is good option. 

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. 
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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.
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A super segment. A pizza is a super economic way to feed a family. PZA is the go-to name in Canada.

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. 

Not as much trading activity due to smaller market cap. Under a "distribution" trend (steadily lower highs), which indicates a downward trend. Not a good sign for momentum traders. Would wait for bottom before buying. 

A good small-cap and a solid business. A sleepy stock that's overlooked, but they execute and pay a steady dividend. Pays a nice dividend of over 6%.

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.
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This Canadian chain is everywhere and its brand is known by everyone. That is PZA‘s strength—an entrenched fast-food chain with locations to serve nearly every corner of this massive country. If an economic slowdown hits, PZA will endure as diners trade down and loyal customers will continue to snack here.
Some numbers work in PZA’s favour: trading at a beta of 1.04, a three-year return of 65.69%, and paying a dividend of nearly 6%. However, that comes at a payout ratio of 92%, while EPS growth shrank 5% YOY. Read Planes, pizza and clothes for our full analysis.

PZA’s performance has been quite resilient in the last three years, and is now trading at 15.0x times' Forward P/E.
PZA operates as a royalty company that collect stable royalty earnings from the franchisee and pays out almost all as dividends.
The balance sheet is strong, with net debt of $39M.
Total debt is around 1.3x times trailing twelve-month cash flow of $29M, and cash flow grew around by 16% compared to $24M last year.
Going forward, sales are expected to grow by 3% - 5% along with inflation.
Although growth is not really fast, the company has been stable, and predictable in earnings and dividend payments.
Overall, we think PZA is solid name for income purposes.
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