Francisco Olivera of Arevilo Capital Management presented his in-depth investment theses on Restaurant Brands International (NYSE: QSR) and Charter Communications (Nasdaq: CHTR) at Best Ideas 2018.
Restaurant Brands International owns three of the best quick-service restaurant brands in the world: Burger King, Tim Hortons, and Popeyes. As the franchisor of each brand, the company is essentially a royalty business with high returns on invested capital and low capex. Given the significant opportunity to expand global restaurant units, the company has a large runway to grow revenue and free cash flow over the long term. The company is essentially controlled by 3G Capital, which has implemented an ownership-oriented culture with strong leaders. The growth opportunity, free cash flow profile, and ownership culture make for an attractive business to own for the long term. The shares trade at ~23x LTM FCF and leverage is 5.6x EBITDA. Francisco estimates that the company could payout 38% of the recent market cap to shareholders over the next five years.
Charter Communications is the second-largest cable TV operator in the U.S., with 27 million customer relationships, 23 million broadband subscribers, and 17 million TV subscribers. Led by Tom Rutledge, Charter is unique in its operating strategy, which centralizes decision-making, simplifies products and services, and increases capital investment in order to maximize the potential of the cable network. By implementing the operating plan, Rutledge has improved customer growth, reduced costs per subscriber, and has accelerated EBITDA growth. Charter is an attractive investment because Rutledge is only beginning to implement his operating plan over a significantly enlarged Charter (following completion of the Time Warner Cable and Bright House Networks acquisitions in 2016). Charter trades at ~11x EBITDA and leverage is 4.3x EBITDA. Assuming constant leverage, Francisco estimates Charter could generate $35+ billion (~35% of the recent market cap) for deployment to repurchases or acquisitions over the next five years.
About the instructor:
Francisco M. Olivera is the Co-Founder and President of Arevilo Capital Management, an $11 million private investment fund. Arevilo was founded in 2014 with the goal of successfully investing in businesses by taking concentrated positions (10-25% of capital) with long-term holding periods (5-10+ years). From 2011 to 2013, Francisco worked as an analyst in J.P. Morgan’s Financial Sponsor Group within the investment banking division. Francisco received his BS from Bentley University in 2011.
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