Q: most of their restaurants are owned by franchisees yet they have a fair amount of debt ,and growing. Is this a concern? Thanks
5i Research Answer:
Most franchisees indeed involve leverage in their operation due to the capital intensity of opening a restaurant. That being said, from the franchisor’s perspective such as QSR, MCD, etc. the risk is well diversified given the large amount of franchise stores. We don’t think this risk would be meaningful for QSR. Net debt is high at about $13B, but cash flow is also high and steady. Free cash flow conversion is also good. Interest expenses have represented about 1/3rd of cash flow over the past decade.