The Restaurant Finance Monitor Stock INDXX continues to outperform the broader stock market indices. Through September 28, 2018 the index was up 20.6% year-to-date and 25.5% over the past 12 months. For comparison, the S&P 500 index was up approximately 8.9% and 15.6%, respectively.
Restaurant M&A activity continues to be a driver of outperformance for the index. On September 25, SONIC Corp (SONC) announced it would be acquired by Inspire Brands, a unit of Roark Capital, for $2.3 billion. That price was a hefty 20% premium to the day’s previous close. Sonic has been a positive contributor to the return performance of the index, as its management team has been slowly shrinking the share float of the company, buying back shares as a result of a shift to refranchising. Other M&A activity in the restaurant sector has also made news. Roark and activist Nelson Peltz are said to be vying for Papa John’s International (PZZA) and activist Bill Ackman recently took a $900 million share position in Starbucks (SBUX). Bojangles (BOJA) has hired Bank of America to look at "strategic options" and the stock has moved higher.
Activism and optimism in restaurants continues to support the transference of value from public restaurant companies to private enterprises as PE funds continue to favor the asset light business model. However, the insatiable restaurant appetite of private equity firms led by Roark Capital, may put a floor on segment valuations in the future as high-performance companies are moved from the public markets to private ownership.
What else is driving performance in the Restaurant Finance Monitor Stock INDXX? Performance. Return on equity for the index is running around 25% and trading with an enterprise value to EBITDA of roughly 16.76x.
Admittedly, these positive results may be more indicative of optimism by investors towards the restaurant industry than outstanding operating results. Expectations are that same store sales will challenged a s result of hurricanes and overall competition.
The Restaurant Finance Monitor Stock INDXX was rebalanced on September 28th and the most significant change was adding back Restaurant Brands International (QSR) to its top holdings. Also added back were Dave & Busters Entertainment (PLAY), Cracker Barrel Country Store (CBRL) and Darden Restaurant (DRI). Weakness in stocks in the Emerging Markets impacted the index holdings and led to the removal of YUM China (YUMC) and Arco Dorado Holdings (ARCO). Papa John’s International (PZZA), Bloomin Brands (BLMN), Red Robin (RRGB) and Del Frisco Restaurant Group (DFRG) were also sidelined pursuant to the index methodology.
The Restaurant Finance Monitor Stock INDXX currently has 31 holdings as detailed below, weighed as per the rules methodology with 20 positions qualifying as Quick Serve (QSR) and 11 positions as Full Service (FSR).
ARCO, BJRI, BLMN, BOJA, CMG, CAKE, CHUY, CBRL, DRI, DFRG, DENN, DIN, DPZ, DNKN, EAT, FOGO, FRGI, HABT,
LOCO, JACK, MCD, PLAY, PZZA, PBPB, RRGB, QSR, RUTH, SONC, TAST, TACO, SHAK, SBUX, TXRH, WEN, WING, YUM, YUMC, ZOES
The Restaurant Finance Monitor Stock INDXX seeks to provide access to the U.S. publicly traded restaurant industry. Based upon industry research the index tilts about 70% towards Quick Service Restaurants (QSR). The index rebalances its holdings quarterly and uses proprietary quantitative screens to remove underperforming restaurant stocks; thereby establishing leadership.
For more information, call Dan Weiskopf 212 628-4882