(09-04-2011, 10:17 AM)Drizzt Wrote: Hi dydx,
by alot of valuation ratios this looks like an opportunity.
at 21 cents.
PTB: 0.86 times
Price to Operating cashflow: 3.90 times
EV/EBITDA = 0.99 times
Price to Sales = 0.56 times
IMO they just need 1 year result better than last year to earn back their market enterprise value. how hard can that be??
The operating lease liability has increased by 33%, representing 90% of previous year's revenues, whereas for Dec 2009, they represented about 67% of the year's revenues.
The operating lease expense going forward should be about $5m per quarter, which should be higher than any of the last 4 quarters too.
Once you add back the operating leases, EV/EBITDA is a whole lot more than 0.99 - and it does not look so spectacularly undervalued.
While they've opened 1 new restaurant in China and 2 new food courts, it does not look like they've increased the square footage by 33%; rather they're paying more per square foot. And if they have proudly said that they're not rising prices for the next 6 months, then it looks bleak for margins.
The annual report is very nice & glossy, more happening than it was in 2007. What it does say is that they're (i) having more fancy food courts and (ii) moving from simple no-frills food-courts to full-service restaurants.
The thing is that (i) it still remains to be seen if nicer decorations convince people to pay 20-30% more for their food, and for 2010 they have not charged fees to the stallholders that match their rent increases. (ii) Restaurants are usually more competitive than food courts - they are a higher cost producer, the consumer has a lot more choice and barriers to entry are lower.
Unfortunately, the annual report isn't telling us (i) how they see themselves adjusting to higher lease costs and (ii) how the restaurants (esp the money losing one in China) are doing, although we get very tantalizing hints (like from stock buybacks) that some turnaround / improvement is underway.
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