By Malcolm Berko
Want fries with that?
Dear Mr. Berko:
Please give me your honest opinion on Burger King Worldwide.
Is it a good growth stock investment for a 53-year-old postal worker's individual retirement account?
I hope to retire next year after 30 years with the service. I'd like to buy 100 shares, so please tell me what you think about it and give me your honest opinion.
DW, Moline, Ill.
Dear DW:
Burger King Worldwide (BKW-$14.75) came public again in June 2012 at $15.
And my “honest opinion” is I wouldn't buy BKW, because I believe the stock is priced too highly.
But I’m inarguably convinced that BKW’s burgers, fries, shakes, salads and menu of savorous, relishable and piquant delectables are, by orders of magnitude, the most gustable — though blockbuster calorie offenders — in Burger Land.
I’m also convinced, if past is prologue, that BKW will continue to be a stinky investment.
Certainly, its pubescent, green management team is very light on franchising experience and fast-food delivery systems and also lacks people skills to motivate, as well as earn the confidence of, its diverse mix of franchisees.
BKW has 12,500 units in 81 countries, of which 1,200 are company-owned.
And I’m told that more than a few franchisees, many of whom couldn’t manage a two-car funeral, are unhappy campers.
BKW should report $2.1 billion in revenues and minuscule earnings of 24 cents a share this year.
However, BKW has more than $3.2 billion in debt, thanks to 3G Capital, the private equity firm that took it private in October 2010.
The partners at 3G Capital had BKW borrow $2.5 billion (zooming BKW's debt load from $700 million to $3.2 billion), enabling the partners to pay themselves a sweet $2 billion dividend several months before the initial public offering.
This is not the first time a private equity firm used an IPO to euchre billions from BKW and investors.
But 3G Capital still owns 71 percent of BKW, perhaps enough to give 3G Capital incentive to make the company a success.
Then it can dump its remaining shares to another private equity firm that will take BKW private again, quadruple its debt, siphon a few billion and sell the shares again to new investors.
One of the most significant reasons McDonald’s (MCD-$88) does so well is its incomparable Oak Brook, Ill., management team. MCD’s average revenue per store is $2.3 million, compared with BKW’s average of $1.2 million.
That's a huge difference, considering both companies serve an identical market, that most locations (like Walgreens and CVS) are within a block each other and that building, construction, food and equipment costs are comparable.
McDonald’s management people grew up wrapping burgers, cleaning toilets and making fries.
They've been doing it for decades, and proof is in a nonpareil record of revenue, earnings and dividend growth.
And the best proof is that a 100-share purchase of MCD at its $25 IPO price in 1965 is now 74,000 shares (12 splits) worth $7.3 million.
However, an investment in BKW — which has been successively owned by Pillsbury, Grand Metropolitan and Texas Pacific Group, as well as 3G Capital — is basically worth a bit more than bupkis.
And I strongly doubt that future earnings will be attractive enough to move BKW higher than its IPO price.
Investors should recognize that BKW’s Miami management team — Bernardo Hees, Jose Cil and Steve Wiborg, whose average age is 41 — has embarrassingly limited experience running a fast-food franchise company and managing people.
So it’s reasonable to assume that BKW's future will be as successful as its past.
Hees, Cil and Wiborg are out of their depth in a parking lot puddle.
These kids are quants in Armani suits who never have had grease on their hands and who lack the feel, the panache, the moxie and the skills to run BKW.
If you want to own the stock, wait for a year, when it’s likely to trade below $10 a share.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com
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