CPKI - PEER GROUP VALUATION

On March 17, we posted a note titled “Feels like 2007” - in that post we provided a list of restaurant companies that could be on the “A” list for a private equity transaction and/or for becoming victim of the rumor mill.  Here is the list again: CAKE, PFCB, MSSR, TXRH, BOBE, EAT, CHUX, RRGB, PEET and CPKI.

 

Late Friday, the WSJ reported that private equity firms are among those considering an acquisition of CPKI.  In the CKE Restaurants proxy filed back on March 17, it was revealed that three other private equity firms were taking a look at the books of CKE Restaurants.

 

Today CPKI announced 1Q10 same store sales of (2.7%) and revenues of $156.7M vs. consensus of $157.2M. It is also guiding 1Q10 EPS to $0.07 vs. prior $0.05-0.07; EPS excludes an approximate $0.03 benefit for gift card breakage - consensus is $0.07.  More importantly, the company CPKI announced that its board has authorized management to consider a wide range of financial and strategic alternatives to enhance shareholder value.  Included in the announcement was the statement that “Financial and strategic alternatives may include, but are not limited to, changes in the company's capital structure, or a possible sale, merger or other business combination.”

 

If management is looking to sell the company because they want liquidity (the co-CEO owns 8% of the company) I can understand that, but changing the capital structure will not create shareholder value.  Moelis & Company are going to produce a table for management that will look something like the table below.  The format is taken from the CKE Restaurants proxy as part of the fairness opinion that was used to justify the THL offer for CKE.  

 

For the purposes of a comparative valuation for CPKI, we used BJRI, TXRH, CAKE, BWLD, DRI, PFCB, RUTH, EAT, BOBE and RRGB.  These companies represent a mixture of regional and national brands that have both meaningful and limited growth opportunities.  CPKI’s presence in the supermarket channel gives it national brand characteristics, with a regional concentration of restaurants.  Given the turmoil of the past year, historical numbers are important for context to the risks of the business but, not that representative of the growth potential over a typical 5-7 year holding period for a private equity firm.  That being said, a fair range of $20 to $25 is possible, with $22 looking likely.   

 

 

Lastly if a bidder does emerge for CPKI in a range of $20-$25, the acquisition price will be significantly higher than what THL is offering for CKE restaurants.  THL is currently offering $11.05 for CKE, which I think not a great price for shareholders.  I think the price should be closer to $14-$15. 

 

CPKI - PEER GROUP VALUATION - CPKI restaurants

 

Howard Penney

Managing Director


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more