Presentation Transcript

1. Valuation
2. Wendy’s (as we know it) Generic restaurant Basic food Nothing too exciting
3. Then why are these Wendy’s stakeholders so excited? Excited Employees Excited Customers
4. The New Wendy’s Wendy’s is in the midst of a company redesign Broadening Food Selection Legacy menu remains to retain existing customers New items are being introduced to attract new customers Modernizing facilities TVs Fireplaces Unique seating arrangements
5. Great Customer Reviews
6. Valuation Agenda Revenue EPM EPAT Enterprise Value Equity Value
7. Revenue
8. Wendy’s Revenue Four streams Wendy’s Sales Sales at company-owned restaurants Bakery and Other Sales Sales of baked products and kids’ meal promotional items to franchisees and others Royalty Revenue Percentage of a franchised restaurant’s net sales (generally 4%) Other Franchise Revenue Franchise fees and rental income
9. Wendy’s Future Revenue Wendy’s plans to convert 181 company-owned restaurants to franchises this year This will result in four adjustments to forecasted 2014 revenue figures (prior to considering sales growth)
10. Revenue Adjustment #1 Wendy’s Sales will be decreased as a result of divesting company-owned restaurants In 2014, Wendy’s Sales revenue will be decreased by $321.75M (from 2013 level)
11. Revenue Adjustment #2 Bakery and Other Sales will be increased through sales to new franchises In 2014, Bakery and Other Sales will be increased by $2.12M (from 2013 level)
12. Revenue Adjustment #3 Franchise Royalty Revenue will be increased through new franchises generating sales In 2014, Royalty Revenue will be increased by $9.6M (from 2013 level)
13. Revenue Adjustment #4 Other Franchise Revenue will be increased through collection of fees from new franchises In 2014, Other Franchise Revenue will be increased by $20.4M (from 2013 level)
14. Revenue Growth Two elements affect Wendy’s future revenue growth Incremental revenue growth of 4.56%* is expected during each of the next five years as a result of company redesign Constant revenue growth of 2.5% is expected by analysts and management Growth 2014 – 2018: 7.06% Beyond 2018: 2.5% *Experts suggest Wendy’s sales will grow by an incremental 25% over the next five years from the company’s redesign initiative. This results in an annualized incremental growth rate of 4.56%
15. Enterprise Profit Margin
16. Enterprise Profit Margin Many EPAT items are not expected to recur and will be forecasted at 0% of sales Facilities Relocation and Other Transition Costs Breakfast Discontinuation Arby’s Transaction Related Costs Impairment of Long-Lived Assets Impairment of Goodwill Net Income from Discontinued Operations Foreign Currency Translation Adjustment Unrealized Gain on Cash Flow Hedges Other (Expense) Income Other Operating Expense Change in Unrecognized Pension Loss Unrecorded Stock Compensation Expense, Enterprise
17. Enterprise Profit Margin Two EPAT items are expected to change in accordance with total revenue Depreciation and Amortization Depreciation on Capitalized Leases average account balance (2011 – 2013) ÷ average total revenue (2011 – 2013) = multiplier on revenue
18. Enterprise Profit Margin Cost of Sales is comprised of four elements Food and Paper (Wendy’s Sales) Restaurant Labor (Wendy’s Sales) Occupancy, advertising and other operating costs (Wendy’s Sales) Bakery and Other (Bakery and Other Sales) Cost of sales decreased in 2013 due to the following (sustainable) reasons Changes in the composition of sales Decrease in breakfast related costs (discontinued) Favorable impact of new beverage contracts The first three cost of sales elements will be pegged to Wendy’s Sales going forward (32.81%, 29.65%, and 22.22% respectively) using 2013 as a base year Bakery and Other costs of sales will be pegged to Bakery and Other Sales going forward (93.5%) using 2013 as the base year
19. Enterprise Profit Margin General and Administrative Expenses Future expenses are expected to remain consistent with 2013 as a portion of total revenue with one modification In 2013, an incentive expense of $9.178m was included in this account for a non-recurring incentive program This expense is deducted from the base year General and Administrative Expenses Future general and administrative expenses are expected to be 8.77% of total revenues
20. Enterprise Profit Margin Income Taxes on Operations Will use average of past three years 1% of sales
21. Enterprise Profit Margin System Optimization Initiative As part of this initiative, Wendy’s plans to sell 425 company-owned restaurants to franchisees by the end of the first quarter of 2014 The Company completed the sale of 244 restaurants during 2013 Wendy’s expects to sell 181 restaurants in 2014, which will result in an estimated expense of $8.9M, with no expected charges in years beyond This will be forecasted as an expense for 2014, but will be assumed to be zero in 2015 and beyond
22. Enterprise Profit Margin 2014: 11.14% 2015+: 11.51%
23. Enterprise Asset Turnover
24. Enterprise Asset Turnover Given the nature of Wendy’s operations, and the lack of clear indicators, most NEA components will grow in direct accordance with total revenue Two exceptions exist Franchise Agreements Franchise Agreements will grow in accordance with total franchise revenues Reacquired Rights Under Franchise Agreements One-time event driven by the company redesign Will be forecasted at zero in future years
25. Enterprise Asset Turnover 2014+: 0.85
26. Enterprise Valuation
27. DCF
28. REI
29. AGR
30. Equity Valuation
31. Equity Value Calculated Share Value $8.59 4/22/2014 Closing Price $8.55 Hold
32. End