Knock, knock! Who's there? QSR's Red Rooster

Sarah Thompson, Anthony Macdonald & Joyce Moullakis 
April 6, 2017
AFR

Who feels like chicken tonight?

And how much easier would it be if it was home delivered.

That’s the pitch from Red Rooster’s owner QSR as chief executive Brett Houldin and chairman Rob Coombe meet fund managers this week ahead of a potential $500 million-plus listing.

Every float needs to come to market with a growth plan and QSR’s is about home delivery.

As it stands, the company makes 65 per cent of its sales from Red Rooster, and Red Rooster makes about 10 per cent of its sales from home delivery.

Home delivery is a relatively new thing for Red Rooster and with 400 cars already on the road, it reckons its proportion of delivery sales should get up towards market leader Domino’s at close to 50 per cent.

QSR has told fundies this week that research suggests consumers love chicken and they would be just as likely to order it for home delivery as a Domino’s pizza. And home delivery customers on average spend twice as much as those that go into a bricks and mortar chicken shop.

Should that happen, it’s easy to see how Red Rooster’s sales could jump from the $477 million it recorded in the 2016 financial year. It could also spell a capital-lite growth model and allow Red Rooster to expand into new regions, unburdened by barriers like spacious property requirements. 

For QSR, that would lead to an associated increase in EBITDA. Although under the franchisee model, QSR would only pick up a small portion of the increase (or decrease for that matter, should it go that way).

Goldman Sachs and Morgan Stanley have been in the market introducing QSR to fund managers this week, offering chicken lunches to investors they reckon could be interested in buying QSR shares in the coming months.

The travelling troupe is expected in Hong Kong on Thursday.

As always, fundies are a bit sceptical on the growth story. If it is that easy, why hasn’t QSR’s sophisticated owner Archer Capital already rolled out home delivery across its network earlier?

The brokers will take that feedback back to Archer and QSR, and fundies expect to see the company back out and marketing formally in six-to-eight weeks.

Fundies reckon QSR is already being pitched on an earnings multiple somewhere between KFC franchisee Collins Foods and market darling Domino’s Pizza Enterprizes. That’s a wide range. And where in that range QSR comes to market is likely to determine whether the IPO hatches, or not. 

Delivery average spend = 2x non-delivery

Read more: http://www.afr.com/street-talk/knock-knock-whos-there-qsrs-red-rooster-20170405-gve7v1#ixzz4dPThHR5P

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