19:35:44 EDT Thu 28 Mar 2024
Enter Symbol
or Name
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Imvescor Restaurant Group Inc
Symbol IRG
Shares Issued 43,000,198
Close 2014-09-19 C$ 1.74
Market Cap C$ 74,820,345
Recent Sedar Documents

Imvescor holder Crescendo Partners asks for dividend

2014-09-22 12:08 ET - News Release

Mr. Eric Rosenfeld of Crescendo reports

CRESCENDO PARTNERS SENDS LETTER TO BOARD OF IMVESCOR RESTAURANT GROUP, INC.

Crescendo Partners, a shareholder of Imvescor Restaurant group Inc., has delivered a letter to the board of directors of the company. In the letter, Crescendo Partners urges the board of directors of the company to implement a meaningful annual dividend of 12 cents to 15 cents per share, which would imply a dividend yield of between 6.9 per cent and 8.6 per cent, respectively.

The full text of the letter is as follows:

"Dear board of directors

"Crescendo Partners and its affiliates control very close to 10 per cent of the outstanding stock and warrants of Imvescor Restaurant Group LP. We invested in Imvescor over a year ago, due to its strong cash flow generation, its high return on invested capital (ROIC) franchisor business model and the significant upside in the stock price due to what appeared to us to be material undervaluing by the market. Unfortunately, this undervaluing has persisted. One of the main reasons we believe the stock is still trading at a significant discount to its peers is its lack of a dividend. We strongly believe that the board should implement a meaningful annual dividend of 12 cents to 15 cents per share payable quarterly, which would imply a dividend yield of between 6.9 per cent and 8.6 per cent, respectively.

"A 12-cent to 15-cent dividend is indeed appropriate as it will result in the company paying shareholders between $5.1-million and $6.5-million annually, implying a dividend payout ratio of between 40 per cent and 55 per cent of the LTM free cash flow, respectively. Since fiscal 2011 (year-end October, 2011), the company has generated free cash flow of $7.3-million in 2011, $10.5-million in 2012 and $9.7-million in 2013. Furthermore, during the last 12 months, Imvescor has generated $11.7-million of free cash flow. Based on our expectations for 2015 and beyond, we consider that a dividend of this size will be entirely manageable and will help to highlight the value inherent in Imvescor's stock. Clearly, the initiation of a dividend will substantially enhance market confidence by virtue of its reflection of the company's own confidence in its ability to generate consistent and recurring free cash flow.

"We were attracted to Imvescor due to the company's strong cash flow generation and stable revenue base. Imvescor's four restaurant concepts generated nearly $370-million in system sales during the past 12 months, and the company receives a blended royalty rate of approximately 4.7 per cent (based on third quarter filings on SEDAR). In addition to franchise revenue, Imvescor generates revenue from owned store sales and retail sales. Given that franchisees are responsible for maintenance of existing locations, Imvescor has a substantially reduced capital expenditures burden resulting in high ROIC potential.

"Nevertheless, Imvescor's stock has remained deeply and frustratingly undervalued compared its peers. Its closest peers include Boston Pizza Royalties Income Fund, MTY Food Group Inc., A&W Revenue Royalties Income Fund, Keg Royalties Income Fund and Pizza Pizza Royalty Corp. As you can see [in the table], Imvescor trades at a significant discount to these companies based on nearly every metric.

Symbol    Company name                        LTM           2015E         Dividend     Yield

                                              EV/EBITEV/RevEV/EBITEV/Rev

BPF.UN    Boston Pizza Royalties Income Fund  12.7x  12.2x  11.8x  10.8x    $ 0.31      5.9%
MTY       MTY Food Group Inc.                 18.2x   5.9x  12.2x   5.0x    $ 0.09      1.0%
AW.UN     A&W Revenue Royalties Income Fund   14.8x  14.5x  12.8x  12.6x    $ 0.35      5.7%
KEG.UN    Keg Royalties Income Fund            8.5x   8.3x   9.4x   7.7x    $ 0.24      5.7%
PZA       Pizza Pizza Royalty Corp.           14.3x  14.0x  13.6x   0.9x    $ 0.20      6.0%
          Average                             13.7x  11.0x  12.0x   7.4x                4.8%
IRG       Imvescor Restaurant Group Inc.      6.1x    1.7x   5.9x   2.2x    $    -     -0.0%

Source: S&P Capital IQ.

"In our considered opinion, the reasons for the persistent undervaluing include:

  • "Shareholders are unhappy that the company was not able to complete a sales transaction.
  • "Shareholders want to meet the new chief executive officer and understand his plan to execute the turnaround of each concept, including his views on how to improve sale trends.
  • "Shareholders need to be assisted in developing their views as to the ability of the new CEO to actually execute on the initiatives in his plan.
  • "Importantly, the company's reluctance to return cash to shareholders reflects poorly on corporate confidence and is discouraging to actual and prospective investors.

"In conclusion, although numerous shareholders such as ourselves are disappointed that Imvescor was not able to complete a transaction with a potential acquirer, we believe that the implementation of a 12-cent to 15-cent dividend will be well received by investors and help restore confidence. In fact, we are aware that a very substantial portion of existing shareholders are supportive of implementing a dividend.

"From a dividend yield perspective, IRG's peers trade in a narrow range. This gives us confidence that the implementation of an appropriate dividend would help support a stock price at a healthier level reflecting improved relative valuation metrics. Subject to only one outlier in the table, the average dividend yield for the company's peers is 5.8 per cent. If Imvescor were to institute an annual dividend of 12 cents/share, we believe, based upon peer group dividend yields, that its shares would trade at or about $2.07. Similarly, at an annual dividend of 15 cents/share we believe that the shares would trade at or about $2.59. These prices reflect upside values of 20 per cent and 49 per cent, respectively. The implementation of a dividend yield at these levels would leave room for future increases as the company's performance improves."

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