The King Is Back: A Whopper Of A Stock

| About: Restaurant Brands (QSR)

After going private in 2010, Burger King (BKW) is once again back on the public stock markets, trading on the NYSE with the ticker BKW. Through a complicated financial transaction, Burger King is now public again, without an IPO.

Buy a Whopper?

Burger King has several interesting plans in the pipeline that might be interesting to potential investors.

1: Joint Venture to Open 1,000 Restaurants in China.

As reported by the Washington Post, Burger King is expanding its China footprint from 63 restaurants to 1,000. This could greatly impact growth, as other fast food stalwarts like McDonald's (NYSE:MCD) have had phenomenal success in the Chinese market as the middle class clamors for more American-style amenities.

2: Mobile Payments System Pilot

Burger King and a Qualcomm subsidiary are partnering to introduce a smartphone-based payment system utilizing QR-code scanning apps. This is a good technology to get behind, especially considering their expansion in China. Technology analysts project that by 2020, smartphones will overtake credit cards and cash as a payment method.

3: Expansion in Russia

While Burger King might not have much luck if they try to sell their bacon sundae in the Siberian tundra, they should have far better luck with the endeavor they're undertaking: an expansion from 57 restaurants in Russia to several hundred.

4: Menu Expansion

In response to complaints about stale menu choices, Burger King revamped their menus with healthier choices as well as expanded breakfast offerings. The move has paid off: the new menu has been generally well received by customers.

5: Remodeling

Following in the footsteps of other major chains, BK has been remodeling chains for an updated look.

Earnings Analysis

BK's 2012 1Q earnings report provides an interesting context to the above move. The highlights, good and bad:

  • Net Restaurant Growth was 22 new restaurants for the quarter, compared to 49 for the previous quarter. This annualizes to 88 new restaurants on the year. If BK follows through with the Chinese and Russian expansions (and potentially an Indian expansion as well), this figure should revise significantly upwards in future quarters.
  • EBITDA increased an impressive 20% year-on-year. The majority of income growth came from franchised restaurants.
  • It's important to note that while Burger King is reducing debt, interest repayment is still eating up a significant chunk of earnings. Income from Operations for the quarter was $85.4M, and total interest expense was $47.2M (55% of income from operations.) While this figure is a reduction from the 1Q 2011 figure of $50.2M, it may increase in future quarters as BK remodels and expands.

I'll be analyzing the 2Q earnings when they come out to see if the general success trend continues. As with an IPO, I prefer not to invest immediately, but I'll be following market pricing of BK over the following months. If earnings success continues, and BK demonstrates their capability of following through on their expansion plans, I may look for an entry point into the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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