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We presented our QSR Short Black Book on December 1, highlighting the company's struggling asset base and limited options due to high leverage. Burger King USA and Tim Hortons Canada are struggling. Despite having a decent breakfast business, BK USA has below average unit volumes. Tim Hortons Canada was underperforming headed into the pandemic and didn't rebound well from the lockdown lows. Now Toronto is back in lockdown. An expensive transition to digital at Tim Hortons Canada and continued discord between the franchisor and franchisees is a sign of stress in the system and a signal of further underperformance. EBIT margins have been declining since the peak in 4Q17. QSR's high leverage limits its options to speed up the recovery process and provide capital to needed franchisees. Due to the concerns mentioned above, QSR's profitability is not recovering like others in the industry. Consensus has EBITDA +3% above the 2019 peak, which looks aggressive. We see -20% downside from the current level, which is at its average EV/EBITDA valuation and expect that to go to the low end of the range going forward.
