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Thomas Finser

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  • What's The Beef With Wendy's? [View article]
    Thank you for the comment. This view matches consensus. The sell-side has 14 “hold”+ 2 “sell” and 3 “buy” ratings on WEN. The stock is caught in “wait and see purgatory” for the reasons you mention. Although the market is often right, significant mispricing of risk is more likely to occur in the presence of:

    1. Disequilibrium, non-linear change from the quiet evolution of asymmetric pressure points.
    2. Over clustering of homogeneous opinion (often based on recent salient events).

    We can tick both boxes with WEN. As described in Part II, re-imaging is a potentially disequilibrium event in the LT growth trajectory. Furthermore, one may observe significant clustering of opinion from major thought leaders regarding LT prospects for WEN.
    Nov 7 01:46 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks Hewitt. I agree with your thought process. However, we need to look at the full spectrum of risk/reward. My NAV of $6.95 is a conservative estimate of WEN today (not factoring in the growth options from Part II). Again, there are risk and rewards to this re-imaging initiative that must be layered into the analysis. I hope to clarify this point in the next segment.
    Nov 4 11:07 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks for bringing up a good point. This is the reason for my analysis. We need to test these theories, at least on paper, to see what happens. My last article was focused on SOTP as of today (not a projection of future growth outcomes). In the next article in progress, I hope to address some of your concerns. Please stay tuned for the next segment.
    Nov 4 10:59 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thank you for again for the thoughtful feedback. As you mention, my franchise margin estimates are on the low side. I'd rather err on the side of caution at this juncture. You bring up some good points on Trian which I'm currently addressing in the upcoming article. Setting past misdeeds aside, we need to examine the situation from a fresh perspective, re-examine the proxy statements and dig into the recent 8-K filings. There's a reason the stock trades at this level and we need to make sure the facts as of today line up with current sentiment embedded in this price. I'm also hoping to address this leverage question in the upcoming article. Please stay tuned.
    Nov 4 10:48 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks Hewitt. I'm running risk/reward right now for the next article. The NAV of $6.95 is just the beginning. It gets more interesting when you look at growth...operating leverage from the slew of initiatives discussed in Part II. In terms of risk, I worry about time and opportunity cost. As I'll share, the most realistic downside is another 24 months of $4.16 and Trian making a stealth KO at $5-$6. Nobody cares about WEN and Trian could probably walk off with these assets at a discount to NAV.
    Oct 31 07:50 PM | 1 Like Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanksso much Jim. I would look at the recent 10-K around p.59 where they discuss impairment oflong-lived assets.I see $1.2bn(round #s) forlong-lived intangibleassets. $900m ofthis is the Wendy's trademark value which could be inflated given the timing of initial valuation (pre-financial crisis).In short, thisis boosting thebook value inMorningstar. I don't have much insight into this beyond what's in the K. However, I'mnot overly concerned with book value at this point. I would focus on cash flow given the debt situation and likely capex requirements for WEN.

    Hope this helps. T
    Oct 30 03:31 AM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks for the great question Hewitt. Here is a link to the case study mentioned. http://bit.ly/VAntme

    On the operating leases, you ask a tough question for which I have no concise answer. There is no substitute for thoughtful deliberation on the unique situation of each company. Valuation is often more art than science and not all liabilities or obligations are created equal.

    Normally an operating lease obligation is NOT included as “capital” on the balance sheet. However, contractual obligations cannot be ignored. In a forced liquidation event, operating leases are often treated as debt.

    I decided against including OBS operating lease obligations for two reasons:

    1. My aim is to highlight the various operating assets as going concern entities. This is not a liquidation/exit analysis where I'm netting out assets and liabilities at the auction block next week. The aim is to show what the company-owned store asset is worth "as is" and as a stand-alone business.

    2. The lions share of operating lease obligations are related to corporate stores. I have deliberately assumed this obligation within comparable valuations for recent restaurant transactions. Though far from perfect, I have a reasonable proxy for the "net worth" per corporate store inclusive of all operating expenses and LT obligations. Note that many of these comparable stores are/were sold with significant LT lease obligations. Simply put, adding in this contractual obligation on top of my valuation for corporate stores may double-count.

    However, I understand your point. To include this significant LT OBS obligation, I would capitalize operating leases discounted by the cost of debt…assuming you believe WEN is a going concern. Unfortunately we get minimal help in the K for timing of these contractual obligations.

    I would consider a 20-year estimate discounted at 7% to 9% (don’t forget to net the total lease obligation against OBS lease income on p. 121). Deduct this from SOTP NAV to account for the OBS obligation. Please note, this is likely more of LBO type view and works in non-distressed situations. See this useful guide from Merrill for some color.
    http://bit.ly/PDWGsJ. Using this framework, I found minimal impact to the SOTP valuation.


    Thanks again for the great question.
    Oct 30 02:26 AM | 2 Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Unlikely. YUM is refocusing on core brands and talking down M&A. PE deals more likely at this juncture. Trian clearly has plans for WEN and Peltz is certainly mulling things over given $4.16. That said, I would not base an investment thesis on the deal catalyst alone. This is a management execution story relative to low expectations implied in today's price.
    Oct 28 12:43 PM | 2 Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Please re-check your store count data from the K. WEN net store count up every year since '09. For '12, planning on 20 new corporate + 40 NA franchise + 55 international. Franchisee base will consolidate as the big get bigger. Also, share buybacks not material with IA in play. Furthermore, Trian will hit the 32.5% ownership cap under Delaware law (unless they go for the whole enchilada). Commodity costs show up in restaurant margins as seen in the K.
    Oct 28 12:25 PM | 1 Like Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Again, WEN is a massive system with thousands of stores around the world. Given the scale and scope of operations, I lend more credence to national Zagat ratings. Sure they have hundreds of lagging stores...but this is the opportunity or the "low-hanging fruit". Furthermore, as seen in the June IR day, "A" rated stores increased from 6.4% in '09 to 25.3% today. On the low-end, "C" rated stores decreased from 40.9% in '09 to 11.7% today. So they've made progress in the past few years with great momentum going forward.
    Oct 28 11:55 AM | 2 Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    All good questions. Please see Part II where I address some of these concerns. Nobody expects IA to happen overnight--especially the market. We agree on competition. As discussed in Part I, the market is bifurcating and WEN is addressing this. Keep in mind, the bulk of NAV is powered by the franchise annuity. The co-owned store assets are priced for distress as mentioned above.

    In reference to the Peltz concern, would you mind adding some detail? You mentioned "stick it out for the long haul". What's the downside scenario you see with Peltz going forward? Also, please double-check your facts on Trian fees in the recent 14A.

    Thanks again for taking the time to read my article. Please keep me posted on IA stores for OH. Would very much appreciate your thoughts.
    Oct 27 10:33 PM | 2 Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks for bringing up an interesting point. The market gave up long ago for the reason you mentioned. Please see Part II for some detail on the catalysts. Investor fatigue will be discussed in greater detail next week. However, it's the marginal rate of change relative to market expectations that must be examined. WEN is priced for permanent operational disappointment.
    Oct 27 12:11 PM | 1 Like Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks. Strategic decision to cut corners on food? This was discussed in Part I. They (WEN) continue to outrank other mega QSRs on food as seen in the Zagat data.
    Oct 27 11:31 AM | 4 Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks for mentioning MHGU. I mentioned these guys in Part II and agree this company looks interesting. They were among the first large franchisees to embrace IA. This idea probably deserves a write-up.
    Oct 27 11:25 AM | 1 Like Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thank you John. From the Pacific Management perspective, do you see any leading indicators that IA stores are delivering on the quality value promise? What, if any, leading indicators should investors monitor that might otherwise fall below the radar screen? Thanks again for taking the time to comment.
    Oct 26 03:30 PM | 1 Like Like |Link to Comment
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