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Holmes Osborne, CFA
Holmes Osborne, CFA
Articles (227)  | Author's Website |

BK Brazil Opening Hundreds of New Stores Every Year

BK Brazil is the operator of Burger King and Popeyes in Brazil. The company is opening hundreds of new stores and has reached profitability and positive free cash flow.

February 22, 2019 | About:

BK Brazil is the owner/operator of Burger King and Popeyes in Brazil. The stock went public in late 2017 and has almost doubled from its low set about four months ago. The company is building hundreds of new stores every year.

The stock trades for BRZ 21.04, there are 222.53 million shares, and the market cap is BRZ 4.682 billion ($1.26 billion). It takes 3.71 real to buy one U.S. dollar. Earnings were .31 real and the price to earnings ratio is 68. The dividend is BRZ .09 and the dividend yield is 0.4%. Not cheap based upon those two metrics.

Sales grew from BRZ 660 million in 2014, BRZ 1.39 billion in 2017, and BRZ 1.78 billion in 2017. That’s awesome growth! Earnings went from a loss of BRZ 35.9 million to a gain of BRZ 3.8 million last year. It looks like BK Brazil is in its growth stages. Cash flow from operations were BRZ 167 million last year but capital expenditures were BRZ 172 million. Free cash flow has been negative with all of the growth going into restaurants.

The balance sheet is incredibly strong. Cash is BRZ 631 million and receivables BRZ 130 million. Payables are BRZ 163 million and debt is BRZ 410 million. No problems there.

BK Brazil operates Burger King, Popeye’s, and other restaurants in Brazil. The company is going to release 2018 numbers in a week so some of this information is a little old. In 2012, BK had 133 Burger Kings and 223 of its own restaurants. That number grew to 526 Burger Kings and 697 restaurants in 2017. Ebitda margins were 10.4% in 2017. That’s pretty good. I like that growth. I wouldn’t buy a restaurant stock unless it were growing like gangbusters.

I found BK Brazil by perusing FPA International’s holdings (FPIVX). Emerging markets and Brazil account for 30% of the fund’s holdings. That’s high because of the risk in EM.

BK Brazil has some of its own brands unfamiliar to us U.S. diners and investors. “Família Picanha” and “BK Costela” are two of these brands. Picanha is beef often served with rice, beans, and French fries. I doubt the Burger King version is the same thing. The main players in Brazilian fast food are: Burger King Brasil, McDonald’s, Bob’s, Subway, Giraffas and Habib’s.

Growth in the last nine months has been very impressive. Sales were up 29.3% to BRZ 1.63 billion. Adjusted Ebitda was up 27.6% to BRZ 163 million. Net income was up to BRZ 44 million which beats a loss of BRZ 18 million last year. An impressive statistic that I saw was that same stores sales were up 6.3%. This is good for several reasons. One is that inflation is high in Brazil and it looks like BK can pass on higher prices. The second reason is that unemployment is coming down and it appears that people are eating at BK.

In the latest numbers, BK owns 594 restaurants and has 142 franchises. Even free cash flow came in at a positive BRZ 13.2 million. BK plans to open 300 Popeyes over the next decade.

Restaurant Brands International, Canadian owner of Tim Horton’s and Burger King, owns shares of BK Brazil. Restaurant Brands is controlled by Brazilian 3G Capital. The stock went public in late 2017. Assuming this chart is still current, the ownership breakdown goes like this: 10.1 Burger King, 13.3% Vinci, 8.3% Temasek, and 12.8% Temasek.

BK Brazil is a high growth company. There is no listing in the United States so you would have to buy in Brazil. I had never head of the company until today. I’m going to follow it.

We do not own shares.

About the author:

Holmes Osborne, CFA
Holmes Osborne is principal of Osborne Global Investors.

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