Here’s How Faster Expansion In The U.K. Can Impact Restaurant Brands International’s Valuation

by Trefis Team
-0.47%
Downside
61.12
Market
60.83
Trefis
QSR
Restaurant Brands International Inc.
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Reports suggest that Burger King, the fast food chain owned by Restaurant Brands International (RBI) (NYSE: QSR) has entered into a financial agreement with private equity giant Bridgepoint to expand in the U.K.  Bridgepoint has also gained a controlling stake in Caspian UK Group which is the largest franchisees in the U.K.  Both these deals would give a boost to Burger King’s expansion in the UK, where the burger giant currently operates around 500 restaurants, much lower than the 1,200 operated by McDonald’s.

Burger King franchised restaurants are the most valuable segment for Restaurant Brands International, accounting for nearly 40% of the company’s valuation as per our estimates. Our current price estimate for RBI is $61 and this estimate assumes that Burger King will add around 300-400 franchised restaurants every year over our forecast period.

However, a faster pace of expansion can lead to an upside in our price estimate. For instance, if Burger King is able to add around 500-600 restaurants every year, through a faster expansion in Europe, there can be a 5% upside to our price estimate. An accelerated pace of expansion where the company adds nearly 800-1000 restaurants every year, can lead to a 10% upside in our price estimate. The below dashboard summarizes the impact of the annual change in BK franchised restaurants on the Trefis price estimate – illustrating the above 3 scenarios.

However, we do not expect the U.K. deal to significantly accelerate restaurant growth (beyond 100 restaurants per year) for Burger King. It can lead to a moderate increase impacting our price estimate by around 1-2%.  While the deal in the U.K. is a significant milestone for Burger King, we do not expect a very material impact of this deal on RBI’s valuation in the short term.

 

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