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Big money in New Zealand fried chicken!
by James Passin
Since my last update on Restaurant Brands (RBD-NZSE), the New Zealand fast food franchise has rallied 130% before dividends. RBD just released blockbuster 2H FY98 results. The net profit of NZ$8.1 million blew away expectations. KFC¹s unit contribution margin rose to a record 20.9%. RBD expanded margins by renegotiating contracts with suppliers and raising prices. The Starbucks launch also exceeded expectations.
RBD will continue to roll out new Starbucks and KFCs. The recently renegotiated chicken contracts will flow through to gross margins in 2H FY99. RBD is trading at just 11x forward earnings and 5.7x forward EBIDTA. There¹s plenty of room left for price/earnings multiple expansion. Continued positive earnings surprises will drive RBD back into the NZ$2 range.
Despite the sharp rally in the share price, I remain exceedingly bullish on RBD. The New Zealand economy is coming back from the dead. As the economy continues to improve, people will eat more fried chicken, order more pizzas, and drink more fancy coffees. Upcoming big sports events, including the Junior World Cup, America¹s Cup, and the Olympics, will turbocharge New Zealand GDP growth.
Management is planning to go on a road show to European and U.S. institutional investors in late February/ early March. I believe that Merrill Lynch is putting together the road show. RBD is potentially a very attractive story to U.S. and European institutional investors. I anticipate a big pop in the stock following the roadshow.
If you¹re going to invest in RBD, I recommend using Peter Schiff at Euro Pacific Capital, tel. 310-448-8000, tel. 800-448-8000, or fax 310-448-8008. Peter is very familiar with the stock and can buy and sell it at good prices.
I need an Imodium...
Shaman (SHMN-NASDAQ) has been a total disaster. While SHMN has successfully moved Provir through Phase III trials for AIDS diarrhea, the stock is down 72% from the peak. SHMN has brought itself to the brink of disaster, depleting the cash balance and almost getting delisted from NASDAQ. The CFO just resigned. CEO Lisa Conte wants to reward herself for these accomplishments by getting another 1.5 million stock options. After holding SHMN for over a year, I need an anti-diarrhea drug.
That said, Provir appears to be effective and safe. Under the Fast Track Approval status, SHMN will get an accelerated FDA review of Provir. I believe in the value of the technology. The market cap is too low for a biotech company with a successful Phase III trial. While I disagree with her brinkmanship and her aggressive fundraising philosophy, I am still betting that Conte will turn SHMN into a successful biotech franchise.
Until SHMN has actually submitted the New Drug Application (NDA) with the FDA, I no longer recommend sinking new money into the stock. On the other hand, I certainly don¹t recommend selling at current depressed prices. There are several catalysts that could trigger a huge rally in the stock. SHMN is now a Hold with a US$9 target.
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