Burger King Holdings Inc is expected to serve up its initial public offering next week, but analysts are expecting a tepid debut for the second-largest hamburger chain in the United States.
Burger King was on a roll with eight consecutive quarters of increased same-store sales, but dropped the ball in the first quarter of this year.
"This is really about Burger King having dropped a couple of burgers off the grill in its past history," said David Menlow, president of IPOFinanacial.com, an independent research firm based in Millburn, New Jersey.
"The current management team has made tremendous strides in making it more palatable. This investment is still about what have you done for us lately."
The Miami-based company said net income for the first nine months of fiscal 2006 fell 18 percent from last year. Burger King reported net income of $37 million on revenue of $1.5 billion, compared with net income of $45 million on revenue of $1.4 billion during the year-earlier period, according to its filing with the US Securities and Exchange Commission.
The hamburger-chain blamed the decline in part on a $14 million loss related to its refinancing last summer, and increased income tax expenses.
Burger King is floating 25 million shares in the IPO, which could raise up to $460 million. The underwriters, led by J.P. Morgan Securities Inc and Citigroup Global Markets Inc, expect the stock to price in a range of $15 to $17. The issue represents a 19 percent stake in the company.
The fast-food chain is controlled by private equity firms Texas Pacific Group, Bain Capital and Goldman Sachs. If the shares price at the midpoint of that forecast, Burger King would have a market capitalisation of 45 times its 2005 net earnings of $47 million.
Burger King suffered earlier this decade from mismanagement and declining revenue. Its revitalisation began after it was bought in 2002 for about $1.5 billion from British drinks company Diageo Plc. The company boosted its sales with new menu items like the Angus burger, more breakfast offerings and a quirky advertising campaign.
Burger King began as a drive-up Miami hamburger stand in 1954. In the last half-century it has grown into an international presence, selling its burgers and shakes in over 11,000 restaurants in 65 countries, according to the filing.
It is dwarfed only by McDonald's Corp, which has about 30,000 restaurants in 119 countries, and therein lies another problem for Burger King, analysts said.
"What investors are really concerned about is growth, and it's hard to find where the growth is with Burger King," said Tom Taulli, an independent IPO analyst and author of "Investing in IPOs".
"They're in a market where the real value is with McDonald's. They have so much more going for them than Burger King. Given that McDonald's is so powerful and has so much more marketing muscle, they might not have the resources to promote that growth. They will get it off the ground, I just don't see it as being a great deal."
Three restaurant companies came to market this year, in deals totalling $1.146 billion, according to data provider Dealogic. Shares of Chipotle's Mexican Grill Inc have soared 191.8 percent since their debut, while shares of Tim Hortons Inc have risen 22 percent.
Chicago-based steakhouse chain Morton's Restaurant Group Inc's shares have fallen 1.1 percent since their February debut, according to Dealogic.
Comments
Comments are closed.