burger king mod iii valuation using multiples jake peng
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Burger King Mod III – Valuation Using Multiples Jake Peng. An overview of the QSR industry. Fast Food Hamburger Restaurants (FFHR) High competitive High volume, low margin Compete on cost leadership and market penetration. Restaurant industry ($1.75 trillion). Fine dining

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an overview of the qsr industry
An overview of the QSR industry
  • Fast Food Hamburger Restaurants (FFHR)
  • High competitive
  • High volume, low margin
  • Compete on cost leadership and market penetration

Restaurant industry

($1.75 trillion)

Fine dining

Quick service restaurant

“Fast casual”

Others

overview of burger king
Overview of Burger King
  • World’s 2nd largest FFHR
  • 12,997 restaurants in 86 countries
  • 1.9 billion in revenues, 118 million net income (net margin 6.2%)
  • 12% of total FFHR consumer spending (2012)
  • Brief history
  • Started in 1950s; changed hands several times
  • Acquired from Diageo by a P/E consortium in 2002 and first went public in 2006
  • Acquired by 3G Capital in 2010 and went public again 2012
valuation using various multiples
Valuation using various multiples

Overvalued

Undervalued

Overvalued

share price
Share price

1/24/2014

$23.06

2/28/2013

$18.25

~40%

reason for rise in stock price
Reason for rise in stock price
  • EBIT and EBIT% Growth
  • EBIT jumped by 25%
  • EBIT (Operating margin) jumped by 8 percentage
reason for rise in stock price cont d
Reason for rise in stock price (Cont’d)
  • Increase in stores and sales
  • 750 new stores in two years
  • More profitable on average
reason for rise in stock price cont d1
Reason for rise in stock price (Cont’d)
  • Cash
  • Cash balance (Dec 31, 2012) – 547 million (28% of total revenues)
  • Operating cash flow – 224 million (200% of net income)
  • Make no use of line of credit in 2012
  • 2% of sales designated as operating
reason for rise in stock price cont d2
Reason for rise in stock price (Cont’d)
  • Franchise rate – A way to become “lighter”
  • 97% restaurants are franchised
  • 871 (70%) owned restaurants re-franchised in 2012
  • Save huge amount of resources (e.g., labor and capital)
  • More profitable than owned restaurants (Gross margin of BK: 11% vs. 86%)
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