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 Restaurant Brands (RBD-NZSE)
1999 has been a banner year for Restaurant Brands (RBD-NZSE) management. RBD radically cut costs by renegotiating chicken and paper contracts. Low-margin Pizza Hut restaurants were replaced with high-margin Pizza Hut takeaway locations. The total number of RBD stores grew by over 8%.
As a result, EBITDA (earnings before interest, taxation, and appreciation) grew to a record NZ$30 million. Despite the record results, RBD is trading 40% below the IPO price. No matter how you slice it, RBD is dirt cheap. At current levels, RBD is trading at just 9x earnings, 5x cashflow, 0.5x sales--and it pays a 10% dividend yield to boot!
RBD remains an outstanding play on the New Zealand economy. With its diversified portfolio of franchises (KFC, Pizza Hut, and Starbucks), RBD is leveraged to the spending habits of every sector of the population (the Maoris gobble up chicken; middle-class families order takeaway pizza every week; white collar workers down cafÈ lattes on their way to work). The Starbucks franchise alone represents tremendous growth potential. RBD is planning to open a total of 50 stores in both islands.
I continue to rate RBD as a Strong Buy.
 Uni-Charm (8113-Tokyo)
When I recommended Japanese stocks in February 1999, the Nikkei was hovering around 13,000--and the mainstream press gloated over the death of Japan (the same publications that declared Japanese world domination in 1990). Pundits shrugged off the strength in the Japanese yen, maintaining insane dollar/yen forecasts of 170 or higher.
The Nikkei has since rallied to the 17,000 range. Foreign investors flooded into the market. The yen radically appreciated without breaking the economic recovery. Small Japanese stocks outperformed the Nikkei. Japanese Internet stocks rose 5x.
Uni-Charm (8113-Tokyo) has benefited from the Japanese rebound. The stock is up sharply over the last six months despite a 2.4 million share sale by some large shareholders. Uni-Charm is currently trading in a range between 6000 and 7500 yen.
The recent addition of Uni-Charm to the Nikkei 300 Index should trigger further gains in the stock. Index investors have to buy shares.
The Japanese population is rapidly aging. Uni-Charm's dominant 70% share of the adult diaper market should translate into big profits for shareholders. Uni-Charm remains my top play on the domestic Japanese economy.
Please read on...
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