If you review the operating margins of sir Corp over the past decade, it is clear that Peter Fowler knows how to run restaurants. The transition from fazooli's to scaddabush was excellent and Jack's has stayed relevant. The locations are usually very good, and even standalone restaurants like Red's are nice additions. The ebitda at the restaurant operations was $38 mm and $35mm in 2018 and 2019, respectively. Between 11-12 percent. And those weren't easy years and included struggling canyon creek. And this level of ebitda easily supports sir's leverage of between $30-40mm.
In 2018/2019, the combination of higher min wage, increased delivery options, oversupply and a weakening cdn economy hurt traffic. Arguably, menu prices got extended (not just for sir but industry) too. Then Covid hit.
After the real estate crisis in the US in 2008/2009, private capital partnered with existing players to Hoover up cheap land and properties. They made a fortune. If I were a good restaurateur like Fowler, I would partner with private equity and carefully become a consolidator for brands and concepts that have a future under good management. The capital pool is definitely there. One could have the pick of the litter with regards to available real estate where good deals with lots of leasehold improvements thrown in by desperate landlords could be had. Canadians are sitting on lots of cash and spending on restaurants post vaccine will return in earnest.
Companies can come out of a crisis on the front or back foot. I hope that Fowler is more aggressive in a post vaccine rollout world.
This hypothetical doesn't change my existing thesis. Sir royalty distributed an average of $10 million per year to shareholders from 2017 to 2019. The current market cap is less than $20 million , so trading at 2x annual distribution.
And I think Canyon gets rebranded . It hasn't worked. Keg is a juggernaut in the Canadian market.