Keith Meister from Corvex Management is the third act at the Sohn Conference. By all accounts, fried chicken and tacos are on his menu for Sohn. Friday, news hit that he had Yum! Brands, Inc. (NYSE:YUM)! Brands as a top 5 holding. Dan Loeb and Third Point also revealed a stake in Yum! on Friday via their 1Q letter, as ValueWalk first reported.
In a report titled “The Inevitable Activist“ analysts at Stifel stated:
In a letter to its investors, Third Point Management, led by Daniel Loeb, announced that it holds a “significant stake” in Buy-rated YUM Brands, which we strongly believe will: (1) boost investor confidence in the ongoing turnaround of YUM’s China business (still a +17% ROE business with +10%/yr asset growth, even after the -40% drop in per-store-profits from food-scare scandals, which might ultimately be recoverable); and (2) expedite an inevitable ~$20/sh leveraged recapitalization (that should create ~$16/sh of instant DCF-value creation). We reiterate our conservative RIPE-based sum-of-the-parts $110/sh price target and recommend continued aggressive purchase of YUM shares on today’s strength.
Keith Meister at Sohn conference below
Keith Meister is speaking now and confirms that the hedge fund is indeed long Yum Brands, which is now a big position of Dan Loeb, as reported above.
Keith Meister says that the fast good company has done a very good job dealing with China food-safety issues that have popped up in recent years. He sees a lot of room for expansion. He sees the company franchising more in China and going from 6,500 right now to 18,000 in the next ten years.
The activist has some plans for the company. He believes that the Yum should separate Yum China into “China Co. He believes that owning stores in China reduces franchise mix which reduces ability to use leverage, which will help the company with its expansion plans.
He says that the process of separating Yum China should “seamless” – 50-90% upside – worth $88, plus China Co for free, which would yield a price target of $130-$150 a share, from a current price of about $92.
Keith meister – what do you look for when hiring an analyst
Someone who is commercial ? tina fey hires looks for someone between Harvard nerds and Chicago comedy. Improvising makes it harder and it teaches you to be quick on your feet.
What is Corvex
YUM Is one of the largest investments ever. Yum is largest qsr’s in china
Outside of china it is almost exclusively franchised . there are two different business models in the world. He is giving good credit to the guys who run the business.
YUM china is a great way to play the growth in china we think they will get to 18k locations.
Owner operated in chinas 2 times the size as MCD in china. They have a phenomenal first mover advantage in china. Now what has changed?
They are moving asset light and the stock has become range bound. We want a more franchised model and that is the opportunity in china. Basically gives the company leverage. More financial leverage and predictable cash flow.
Premium to those that can be levered essentially.
Chinese are not without their issues bird flu and food safety
95% said KFC will recover it is a very serious brand in China
earnings power in china we make 1 dollar a share. We think we can get that to 3 dollars a share that will simply be getting back to 2012 levels. We think , management thinks this is conservative. We are buying it at 14X right now and we see that as attractive. Chaos equals opportunity, first issue is owning china.
They think that china business should be spun off. Spin off china co have china co srt up a structure that pays back 3% f revs to the parent co. Franchise co it will pay 200 million a year to franchise co.
Should unlock about 16 dollars in value. Basically it enables the chinese operations to run some franchises .
YUM china becomes a true chinese company with no debt.
Think Mas they can grow eps at 10% a year we think it can grow at 20%. This process can be done pretty seamlessly.
We think there is 50- 90% upside. Franchise co is worth about 130- 160 90 for franchise co and 70 for spinco
Should get 72 value 16 in
Second largest position ever
