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Based in Carpinteria, CA, CKE (CK) scheduled a $200 million IPO with a market capitalization of $840 million at a price range mid-point of $15, for Friday, August 10, 2012.

Five other IPOs are scheduled for the week of July 30. Full IPO calendar available here.

CE filed on updated S-1 July 30, 2012.

UNDERWRITERS
Manager, Joint Managers: Morgan Stanley/ Citigroup/ Goldman, Sachs.
Co Managers: Barclays; Credit Suisse; RBC Capital Markets; Apollo Global Securities; Cowen; KeyBanc Capital Markets.

SUMMARY
According to QSR (quick service restaurants) Magazine (Top 50 Rankings, March 7, 2012), CK is the fifth largest hamburger QSR operator globally.

CK is the result of a July 12, 2010 buyout by Apollo Mgt. Since the buyout CK as been unprofitable and interest charges have exceeded operating income.

On the IPO 50% of stock is from selling shareholders, with the other proceeds to be used to pay Apollo a $14 million management termination, the balance to repay debt, probably incurred to pay dividends to Apollo after they bought CK.

Immediately upon completing (or probably concurrent with) with completing the CK leveraged buyout by Apollo on July 2010, Apollo borrowed at least $190 million to pay themselves dividends: that's what immediately threw CK into a loss position because of skyrocketing debt payments.

Apollo's a net investment was $259 million in CK in 2010.

Consider this: 41% Dining Out Less Often Than They Were Six Months Ago, August 1, 2012

VALUATION SUMMARY

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing March 2012 qtr

Cap (MM)

Sales

Earnings

BookValue

TangibleBV

in IPO

CKE

$840

0.65

420

2.8

-2.5

24%

COMPARE

Mrkt

Price /

Price /

Price /

Price /

To #

annualizing March 2012 qtr

Cap

Sales

Earnings

BookValue

TangibleBV

of QSR

CKE

$840

0.65

420

2.8

-2.5

3,265

McDonald's (NYSE:MCD)

$90,850

3.28

17

6.2

7.6

33,510

Jack in the Box (NASDAQ:JACK)

$1,200

0.59

14

2.7

3.9

2,700

Wendy's (NASDAQ:WEN)

$1,780

0.75

36

0.9

-19.1

6,500

COMPARE

Market Cap /

Stock Price

Dividend

Period

per QSR

Change YTD

Payout Rate

CKE

14 wks

$0.26

none

McDonald's

3 mos

$2.71

0.2%

3.1%

Jack in the Box

12 wks

$0.44

1.8%

none

Wendy's

13 wks

$0.27

1.8%

1.8%

OBSERVATIONS
CK metrics are most comparable with Wendy's in terms of price-to-sales (.65 vs .75) and market capitalization per store ($.26mm vs $.27mm), yet WEN pays a 1.8% dividend and CK has no plans to pay dividends. WEN's price to tangible book value is more attractive at -19 vs -2.5 (the higher absolute number is closer to a positive tangible book value).

In terms of the P/E ratios, only CK is struggling to show a profit. The others are profitable.

Also notice that on a YTD basis sector stock prices are mixed, with no clear direction. And since Apollo Mgt took over in 2010 CK's interest charges have exceeded operating income.

May 21, 2012, system-wide portfolioCarl's Jr.Hardee's

Other

Total

Company-operated

424

468

-

892

Domestic franchised

694

1,227

9

1930

International franchised

204

237

-

441

Total

1322

1,932

9

3263

CONCLUSION
CK looks overpriced relative the WEN, especially because CK is struggling to show generate profits.

Based on the above metrics, we believe the CK IPO is designed to benefit Apollo Mgt, not new investors. If an investor wants to participate in a no-stock growth area (based on YTD stock performance of MCD, JACK and WEN) then WEN looks much better than CK.

BUSINESS
According to QSR (quick service restaurants) Magazine (Top 50 Rankings, March 7, 2012), CK is the fifth largest hamburger QSR operator globally.

CK is one of the world's largest operators and franchisors of quick service restaurants ("QSR") with 3,243 owned or franchised locations operating in 42 states and 25 foreign countries primarily under Carl's Jr. and Hardee's brands.

CK target demographic is the 18 to 34 year old males segment who enjoy "premium food at a reasonable price" and makes up a large portion of the global QSR market.

Pre-IPO SHAREHOLDERS
On July 12, 2010, CK acquired CKE Restaurants through funding from Apollo Mgt. Apollo will own 68.4% or 38,225,945 shares of CK common stock after this offering,

USE OF PROCEEDS
CK expects to net $82 million from the IPO from selling 6.7 million shares. Shareholders also expect to sell 6.7 million shares, or 50% of the IPO.

From the IPO proceeds and cash on hand CK intends to pay:
$14 million to Apollo Mgt a management termination fee and redeem $82 million of Senior Secured Notes (11.4% interest) and pay a $9 million of redemption charges

The debt repayment will save $9.4 million in interest for CK per year.

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

Disclaimer: This CK IPO report is based on a reading and analysis of CK's S-1 filing which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: CKE