Bojangles Valuation (NASDAQ: BOJA – Part 2)

Hello from Spain and welcome to the second part of Bojangles Valuation!

You can find Part One just clicking here: http://www.financialcoding.com/index.php/2018/12/09/bojangles-valuation-nasdaq-boja-part-1/

First of all, let’s see a chart that I found done by students from Cornell University (I hope they don’t mind!) about the Market Share of the Fast Food Industry:

As we can see, the biggest player is McDonald’s Corpration follwed by Yum! Brands, Inc. Bojangles would be inside that 55%. The important thing here is that Bojangles is inside of the Market Share of small companies that represents the 55% of the share market and they have the chance of growing inside that 55% Market Share.

On the other hand (thanks Cornell Students!), those guys did an interesting schema about the Degree of rivalry, the Barriers to entry and the reasons, and finally, the Primary means of differentiation:

In this sector the rivalry is high due to the low barriers to entry. The franchising component does of this industry an easy industry to break into. With the franchising component all of us could have a restaurant if we have previous experience and the know-how of the business.

What differentiates one fast food chain from another? The Price, the food quality, location, style of food and the Service.

I don’t want to focus to much on the industry because I think that the most important thing when you are studying a Company is the Company, not the industry. I mean, when the market is bullish everybody is Warren Buffet. The difficulty is finding companies that due to their business model works independently from the market.

Now that we have an idea of the sector, let’s see some Bojangles’ and their competitors ratios:

In the previous picture we can see that Bojangles is the cheapest Company if we calculate the EV/EBIT ratio, EV/Revenue ratio and the P/E ratio to their competitors and the sector. Bojangles is a growing Company, as we saw in the first part they are consistently growing in Revenues, the point here is that Bojangles are working in the efficiency to achieve the same margins as their competitors. If this is the case (now we are just comparing, not doing a valuation) it could be an interesting Company to invest (just an opinion!). But we will have a better idea in the third part with a DCF Valuation.

As I said, Bojangles doesn’t have the best Margins in the industry but they have neither the worst! McDonalds is who has the best margins (Operating Margin and Net Margin), and Popeyes Louisiana Kitchen has the best last profitability ratios.

Finally, we are going to see the evolution in the last years of the ROIC, the ROE, the Operative Margin and the Net Margin.

Bojangles has not had the best ROIC in the past 5 years, but the ROIC in those past 5 years has been growing to the point that in Dec’17 Bojangles has a similar ROIC as McDonalds.

With Bojangles’ ROE we see the same case as Bojangles’ ROIC. Bojangles has not had the best ROE in the past 5 years but the evolution through those years has been quite good.

Talking about the Operative Margin is where the biggest player wins! Yes, McDonalds is the Company with the highest Operative Margin through the past 5 years. In this case Bojangles has had between 10% and 12,1% of the Operative Margin.

Finally, we can see that McDonalds has the best Net Margin through the years again. In the previous picture we can see that Bojangles has been improving the Net Margin through the years but the operative margin has remained fairly flat! They are reducing the total amount of debt each year.

Now, we know more about Bojangles’ Business Model, Bojangles’ position compared with their competitors in the sector and their evolution through the years. All this data the thing that tell us is if the Company has been improving the last years and how they have arrived to this point, but it means nothing for the future.

In the third part of the valuation, I will talk a bit about the management team and I will do a DCF Valuation.  It will took me more than a week, so I hope to write the final post after Christmas!

Hope you enjoy it!

See you soon

Simón

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