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Burger King Holdings |
BKC, C+, 7 |
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fast food restaurants |
June 30 fiscalyear |
Post-IPO shrs:133mm |
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Miami, FL |
2003 |
2004 |
2005 |
Mar 9 mos |
IPO Mkt |
|
|
Revenue ($mm) |
$1,657 |
$1,754 |
$1,940 |
$1,515 |
Cap (mm) |
|
|
Operating income % |
-49% |
4% |
8% |
10% |
$2,128 |
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Net income ($mm) |
($868) |
$5 |
$47 |
$37 |
@$16 |
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Net income % |
-52% |
0% |
2% |
2% |
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EBITDA % of revenue |
-43% |
8% |
12% |
14% |
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VALUATION RATIOS |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
|
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
|
|
Burger King (BKC) |
$2,128 |
1.1 |
43 |
4.1 |
-3.4 |
19% |
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SCORECARD |
Mgt |
Market |
Market Do- |
Proprie- |
Total |
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|
1-5, 5 is high |
Growth |
mination |
tary |
rating |
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20 is perfect |
2 |
1 |
3 |
1 |
7 |
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Compare & Contrast |
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VALUATION RATIOS |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
Price |
|
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
May 4 |
|
|
Burger King (BKC) |
$2,128 |
1.1 |
43 |
4.1 |
-3.4 |
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|
McDonald's (MCD) |
$44,020 |
2.2 |
16.6 |
3.0 |
3.5 |
$35.03 |
|
Tim Hortons (THI) |
$5,380 |
2.8 |
31.3 |
8.0 |
6.7 |
$28.45 |
|
Wendy's (WEN) |
$7,120 |
1.9 |
24.7 |
4.1 |
4.7 |
$61.62 |
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Summary: yet another leveraged buy-out going public (again), with a disabled balance sheet |
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(see price-to-tangible book value comparisons) |
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Business |
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. Second largest fast food hamburger restaurant, or FFHR |
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As of March 31, 2006, BKC owned or franchised a total of 11,109 restaurants in 65 |
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countries and U.S. territories, of which 7,589 were located in the United States and |
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Canada. At that date, 1,227 restaurants were company-owned and 9,882 were owned by |
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franchisees. |
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Flat market segment |
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. During the past year, the FFHR category has experienced flat or declining traffic which |
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BKC believe is due in part to competition from these competitors. In the United States, |
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the Subway sandwich chain has grown significantly in recent years and positions itself |
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directly as an alternative to BKC products. |
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Recent Management Changes |
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On April 7, 2006, BKC announced that John Chidsey, former president and chief financial |
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officer, had been named chief executive officer. |
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. Also announced that Brian Swette, a current independent director, had been appointed |
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non-executive chairman of the board of directors. |
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. Ben Wells, former senior vice president and treasurer, had been promoted to chief |
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financial officer and treasurer. |
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. Chidsey replaced Greg Brenneman, former chairman and CEO, who is returning to his |
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private equity firm, TurnWorks, Inc. Mr. Brenneman has agreed to continue to work with |
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the Board of Directors as a consultant during the transition. |
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Competition |
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Operates in the fast food hamburger restaurant, or FFHR, sector of the QSR (Quick |
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Service Restaurant) within the broader restaurant industry |
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. Two main domestic competitors in the FFHR category are McDonald’s and Wendy’s. |
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According to public data, McDonald’s and Wendy’s had worldwide system restaurants of |
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approximately 32,000 and 6,700, respectively, and total worldwide system sales of |
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approximately $54.3 billion and $8.7 billion, respectively, for fiscal 2005. |
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. To a lesser degree, BKC competes against national food service businesses offering |
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alternative menus, such as Subway, Yum! Brands, Inc.’s Taco Bell, Pizza Hut and |
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Kentucky Fried Chicken, casual restaurant chains, such as Applebee’s, Chili’s, Ruby |
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Tuesday’s and "fast casual" restaurant chains, such as Panera Bread, as well as |
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convenience stores and grocery stores that offer menu items comparable to that of |
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Burger King restaurants. |
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International |
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. In one of BKC’s major European markets, the United Kingdom, much of the growth in |
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the quick service restaurant segment is expected to come from bakeries and new |
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entrants that are diversifying into healthier options to respond to nutritional concerns. |
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. BKC believes that the large hamburger chains in the United Kingdom have experienced |
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declining sales as they face increased competition from not only the bakeries, but also |
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from pubs that are repositioning themselves as family venues and offering inexpensive |
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food. |
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. BKC’s largest U.S. competitor, McDonald’s, has significant international operations. For |
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fiscal 2005, McDonald’s had approximately 18,200 international restaurants, representing |
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57% of worldwide restaurants. |
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. Other U.S.-based FFHR chains, however, such as Wendy’s, Hardee’s and Jack in the |
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Box, are not currently significant competitors of Burger King internationally. However, |
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Wendy’s has 728 international units, representing 5% of worldwide restaurants. Non |
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FFHR based chains, such as KFC and Pizza Hut, have many outlets in international |
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markets that compete with Burger King and other FFHR chains. In addition, Burger King |
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restaurants compete internationally against local FFHR chains and single-store locations. |
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Use of $374mm in IPO proceeds |
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. Repay $350mm in debt, incurred in February 2006 paid principally to private equity |
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funds controlled by sponsors and members of senior management |
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. Balance used for general corporate purposes. |
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