UBS Starts Restaurant Brands International (QSR) at Neutral

UBS initiates coverage on Restaurant Brands International (NYSE: QSR), the merged entity of Tim Hortons Inc. (NYSE: THI) and Burger King Worldwide, Inc. (NYSE: BKW), with a Neutral rating and a price target of $38.00.

Analyst Keith Siegner commented, "We are introducing our pro forma Burger King ("BK")/Tim Hortons ("TH") merger model, now known as Restaurant Brands International (ticker QSR). Forecasts are based on our early assessment of the PF opportunities after reviewing historical transactions, discussions w/ industry contacts and conversations w/ both companies. We note our base case outlook is subject to change as little detail is still available. We are initiating on shares of QSR w/ a NEUTRAL following a +58% effective incr. in shares of BKW (vs.+8% S&P 500) YTD 2014 and given limited visibility into NT upside from the current ~17x NTM EBITDA mult. Long-term we believe the opportunity for top and bottom line synergies remains significant, but we await further detail or a clear path to earnings upside as the next catalyst."

He added, "Based on our initial PF model, we assume the BK/TH transaction is modestly dilutive by 2016 and 7% accretive in 2017. We look for TH international expansion to benefit from BK's master franchisee network and result in 200 incremental int'l opens by 2017. For cost synergies, we project $175MM with realization over multiple yrs across: 1) G&A rationalization, 2) franchise support efficiencies, and 3) distribution costs savings. Additionally, we look modest tax benefits, incl. ~100 bps of favorability by 2017. Net, we believe the combined company will have a ~7% revenue and ~30% EPS CAGR from 2015-2018, but the model becomes particularly compelling once the 9% Berkshire preferred is retired and 2018 earnings grow an estimated ~40%."

For an analyst ratings summary and ratings history on Restaurant Brands International click here. For more ratings news on Restaurant Brands International click here.

Shares of Restaurant Brands International closed at $36.17 yesterday.

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