logicandinertia wrote: YTD, Keg is down 27%, Boston Pizza is down 22.1% and SIR ROYALTY down 58.4%. Over the past three years, SIR is down 77.2%, due to the pressure felt in 2019 due to changing Canadian market (weakening economy, higher menu prices, delivery and competition all impacted traffic).
At the beginning of 2020, Keg and Boston Pizza were paying annualized dividends of $1.13 and $1.22, respectively. SIR ROYALTY was paying $1.05 in annualized dividends ($0.0875 per month).
Sometimes useful to see where each company is trading based on the assumption that post Covid/Vaccine, they can each get back to those dividend levels. Under this assumption, the implied Dividend Yields would be:
KEG: 10%, Boston Pizza: 11.6%
SIR ROYALTY: 31.0%
The difference between SIR and the other two today is the fact that KEG and BP are currently paying distributions and SIR is not. The market is clearly assuming that both KEG and BP can get back to the pre-Covid business levels (or at least close to them, hence the hypothetical yields). If SIR could re-attain pre-Covid business levels in 2h/2021 (run rate distribution of $1.05), what would the unit price be at differing trading yields?
At 15% dividend yield: $6.80
At 12.5% dividend yield: $8.40
At 10% dividend yield: $10.50
The market is looking thru this last second wave of Covid due to the vaccine announcements and, in the case of Canada, government support to the middle of 2021. The CECRA rent assistance program and the Canada Emergency Wage Subsidy is a vital help to the Canadian restaurant industry, with the former having dropped the condition of the first CECRA program that only enterprises with annual revenues under $20 million be included. This has now been dropped but a cap of $300,000 in rent support per qualifying period has replaced it. How much did Sir Corp pay in rent last year ? About $16 million in both 2018 and 2019, meaning the CECRA support would cover about 22%, or $3.6 million (rough math).
The Canada Emergency Wage Subsidy (CEWS) provides savings to employers by providing a subsidy equal to 75% of employee wages on the first $58,700 per employee, up to a maximum of $847 per week, with NO OVERALL MAXIMUM for the employer. How much did SIR CORP pay for wages last year? It was the largest expense category, 41% of total costs, $112 million in LABOUR expenses (note 17 of SIR CORP Q4 REPORT) and $9 million in salaries and benefits. I’m no expert on this process, but I would assume SIR CORP would receive a large subsidy. RECIPE UNLIMITED (formerly Cara and parent of Keg) reported a subsidy benefit of $34.2 MILLION from the CEWS program for the 13 week period last quarter (note 1 in their Financial Report on SEDAR). I recognize RECEIPE is bigger but WOW, $34.2 million!!
The combination of CEWS and now, the ability for larger restaurants to get direct RENT RELIEF (and that is retroactive) to June 2021 is the additional lifeline that has limited total bankruptcies and explains why these Canadian restaurant royalties have traded so well, despite the recent Covid upsurge.
SIR ROYALTY share price has lifted from “Nobody Cares” level and is only back to April/May/June 2020 level. Still a lot of potential appreciation as the world rolls out vaccines and government support bridges the restaurant industry in Canada for the next several months.
Good luck…