Since no-one complained about me posting so much stock stuff, heres another! But first, a question:
How much would you pay for something that made you $25,000,000 each year?
Its not a trick question, but it is a pretty straightforward way of getting a quick feel for how much a company is worth (a trick I learned from Buffettology). The company in question here is… Restaurant Brands! Purveyors of fine dining experience, like KFC and Pizza Hut. And Starbucks for that frothed, ‘I can’t believe they call that coffee’ fizzy coffee flavoured beverages.
So Restaurant Brands are going through a super share-price ride at the moment. The best performing share on the NZ exchange. From about 60c in Feb 2009 to $2.85 today. Thats… well, thats a lot. If you bought $1000 worth of shares then, you would have approx $4500 now. Plus some pretty nice dividends on the way. A bank account paying 4% would have got you… a bit under $1070. Yay.
So, $2.85. Is that the top for Restaurant Brands?
Back to my original question: How much would you pay for $25,000,000?
RBD are expecting to make $25,000,000 in net profit. Assuming that you could put some money in the bank, and get $25,000,000 in interest, how much would you be prepared to put in?
Kiwibank just came out with this 5.00% sort of but not really on-call account. So 5% of whatever you put in is paid to you each year. To make $25,000,000 you would need to put in $500,000,000.
The point is: If you had the cash, and were happy with a 5% return, you would be prepared to buy RBD for $500 million… But right now, RBD can be bought, lock, chickens and deep-frying vat, for about $277 million. Which suggests that RBD is not as expensive as it might look at first glance.
Obviously this is a major simplification, with lots of assumptions. But all I’m saying, is… maybe theres a few more chickens to be hatched (and then killed, plucked, chopped-up, seasoned and deep fried) in the ol’ Colonels pantry yet.
Disclaimer: I do have some RBD stock in the portfolio. Yay fried chicken!