Boston Pizza pivoted to delivery, but there’s no substitute for sit-down service
Will pent-up demand cause the casual dining chain to outperform expectations?
The stock: This week’s announcement that B.C. is entering stage two of its pandemic reopening plan—with expanded indoor dining and bar service—must have been music to the ears of investors in Boston Pizza Royalties Income Fund (TSX:BPF.UN). Their optimism pushed the Richmond-based company’s units to a COVID-19-era high of $14.85.
There have to be legions of sports fans salivating at the prospect of NHL and NBA playoffs, Euro 2020 soccer and, after that, the Olympics, keen to gather with friends, brews and chicken wings at Canada’s largest casual dining chain, which has 387 locations. Then again, there are still provinces (we’re looking at you, Ontario) where having a roof over your table is still but a dream.
The drivers: When COVID hit, Boston Pizza pivoted to pizza delivery—not bad for a brand better known for its in-house hospitality than its taste. But that was never going to fill the hole in revenue created by public health orders prohibiting indoor dining. Same-restaurant sales in the first quarter fell 29.3 percent from Q1 2020 and more than 40 percent versus the same period in 2019.
Perhaps prematurely, BPF reinstated its distributions to unitholders back in October in expectation of vaccine rollouts and reopening, leading to an unsustainable payout ratio (distributions divided by actual earnings—or, in the case of a royalty fund like BPF, distributable cash) of 231.8 percent in Q1. As the provinces inch toward full foodservice, however, the reality should begin to catch up to the hope. And BPF units still have a way to go to return to their pre-pandemic level of around $16, let alone their 2017 high of $23. Enjoy the 5.3-percent distribution yield while you wait for a table.
Word on the street: The brand concept may have been showing its age even before COVID, but Acumen Capital Partners analyst Nick Corcoran gives management full marks for its response to the crisis. “They did everything they needed to do to stay onside with the bank and with franchisees,” he says. Corcoran foresees further normalization through the balance of 2021 and perhaps even a special distribution at year end if sales surprise on the upside.
Coming and going: Vancouver-based copper producer Capstone Mining Corp. (TSX:CS) joined the S&P/TSX Composite index this week, along with Stelco Holdings (TSX:STLC), Nuvei Corp. (TSX:NVEI) and Trisura Group (TSX:TSU). AcuityAds Holdings (TSX:AT) and Endeavour Mining Corp. (TSX:EDV) were dropped from the Canadian market benchmark, which has about 230 constituents.