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On today’s Breakouts report, there are 28 stocks on the positive breakouts list (stocks with positive price momentum), including three cryptocurrency stocks, and 20 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a high-yielding security that is just pennies away from resurfacing on the positive breakouts list – Boston Pizza Royalties Income Fund (BPF-UN-T). For the past two years, the unit price has traded sideways, largely between $14 and $17.50. A break above $17.50 could lift the share price back to $20. In the meantime, the Fund offers unitholders an attractive yield, currently just below 8 per cent.

A brief outline on the Fund is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The Fund

B.C.-based Boston Pizza Royalties Income Fund has over 370 Boston Pizza franchise operated, casual dining restaurants located across Canada, which are included in the Fund’s royalty pool. BP Canada LP collects a royalty on sales from these franchised operated restaurants.

There is seasonality in the business with the second and third quarters typically generating the highest revenue.

Potential key risks to consider: 1) reduced guest traffic due to weather, caused by poor air quality from wildfires as well as hot and humid weather; 2) reduced guest traffic due to price inflation and tighter consumer spending behavior, 3) pickup in store renovations now that COVID restrictions are lifted (franchisees must renovate restaurants every seven years). This will result in temporary restaurant closures and a drop in revenue during the renovation period that usually lasts around two to three weeks; 4) rising interest rates; 5) supply chain challenges and rising costs; and 6) labour shortages.

Quarterly financial results and outlook

Before the market opened on May 10, the Trust reported strong first-quarter financial results. Franchise sales totaled $224 million, up 25.5 per cent year-over-year. Total revenue came in at $11.9 million, up 25 per cent from $9.5 million reported during the same period last year. Same-restaurant sales (SRS) increased 25.7 per cent, driven by higher guest traffic with COVID restrictions lifted as well as higher guest checks resulting from higher prices and from customers ordering more items. Distributable cash totaled $7.2 million, up from $4.7 million reported in the prior year. Distributable cash per unit was 33.4 cents. The unit price rallied nearly 3 per cent that day on high volume with over 103,000 units traded. To put this in context, the three-month historical daily average trading volume is approximately 54,000 units.

The two main drivers of higher same-restaurant sales are greater traffic (more people) and higher check balances. On the earnings call, president Jordan Holm remarked on initiatives taken to lift SRS, “Boston Pizza began its second quarter of 2023 with a new playoff promotion as hockey and basketball playoffs got underway. This promotion introduced several new shareable menu items plus cocktail innovations and includes TV and digital media advertising, focused on Boston Pizza’s new Fanalytics campaign, optimizing every aspect of the Boston Pizza Sports Bar experience to maximize enjoyment for our guests. An updated name menu also launched in May, introducing several recipes in various menu categories, all available every day for guests to enjoy.”

Distribution policy

Boston Pizza Royalties Income Fund pays its unitholders a monthly distribution of 10.7 cents per unit, or $1.28 per unit yearly. This equates to a current annualized yield of 7.8 per cent.

In April, the Fund announced a 4.9 per cent increase to its monthly distribution, raising it to its current level of 10.7 cents per unit from 10.2 cents per unit.

In the first quarter of 2023, the payout ratio (distributions paid divided by distributable cash) was 91.6 per cent. In 2022, the payout ratio stood at 99.4 per cent.

Analysts’ recommendations

This small-cap Fund with a market capitalization of $335-million is covered by one analyst. Acumen Capital’s Nick Corcoran has a ‘buy’ recommendation.

Revised recommendations

After the Fund released its first-quarter financial results in May, Acumen Capital’s Nick Corcoran tweaked his target price to $19 from $18.50.

Financial forecasts

The analyst’s franchise sales estimates are $915 million for 2023 and $953 million for 2024. His revenue forecasts are $48.5 million in 2023 and $50.6 million in 2024. His EBITDA estimates are $47 million 2023, rising to $49 million in 2024.

The analyst’s financial forecasts have increased modestly in recent months. To illustrate, at the beginning of the year, his revenue estimates were $47.3 million in 2023 and $49.6 million in 2024. EBITDA estimates were $46 million for 2023 and $48 million for the following year.

Valuation

According to Bloomberg, the Fund is trading at an enterprise value-to-EBITDA multiple of 9 times the 2023 estimate, in-line with its five-year historical average. Its industry peer Pizza Pizza Royalty Corp. (PZA-T) is currently trading at an EV/EBITDA multiple of 10.6 times the 2023 estimate.

Based on the target price of $19, the unit price has 15 per cent potential upside (a potential total return of 23 per cent if you include 7.8 per cent yield).

Insider transaction activity

Year-to-date, no buying or selling activity has been reported by insiders.

Chart watch

For the past two years, the unit price has been consolidating, trading sideways largely between $14 and $17.50.

Year-to-date, the unit price has rallied 9.3 per cent, outperforming its quick service and dining restaurant peers in the S&P/TSX SmallCap Index. Shares of Pizza Pizza Royalty Corp. are up 8.6 per cent, shares of MTY Food Group Inc. (MTY-T) are up 7.9 per cent, and units of A&W Revenue Royalties (AW-UN-T) are down 0.9 per cent.

In terms of key resistance and support levels, units of Boston Pizza Royalties Income Fund face initial resistance between $17.50 and $18. After that, there is a ceiling of resistance around $20. Looking at the downside, the unit price has initial technical support around $16, near its 500-day moving average (at $16.21) and 200-day moving average (at $15.72). Failing that, there is technical support around $14.

Units of Boston Pizza Royalties Income Fund are thinly traded, which can increase price volatility. To illustrate, on Fri. July 7, just over 28,000 units traded. The three-month historical daily average trading volume is approximately 54,000 units.

ESG Risk Rating

Looking at three ESG (environmental, social and governance) risk providers, Sustainalytics, MSCI and Bloomberg, the Fund does not have a risk rating.

Positive BreakoutsJuly 7 close
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AAV-TAdvantage Oil & Gas Ltd $8.94
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BDGI-TBadger Infrastruture Solutions Ltd. $30.15
BITF-TBitfarms Ltd. $2.28
BLN-TBlackline Safety Corp. $3.28
CLS-TCelestica Inc $19.88
CHR-TChorus Aviation Inc $3.23
CVG-TClairvest Group Inc. $85.83
DXT-TDexterra Group Inc. $5.93
DHT-UN-TDRI Healthcare Trust $11.35
EFX-TEnerflex Ltd $9.39
GLXY-TGalaxy Digital Holdings Ltd. $6.58
HIVE-XHIVE Blockchain Technologies Ltd. $7.36
HUT-THut 8 Mining Corp. $5.05
KEL-TKelt Exploration Ltd $6.18
MG-TMagna International Inc $77.25
MTY-TMTY Food Group Inc. $61.55
ONEX-TOnex Corp $73.35
PBL-TPollard Banknote Ltd. $27.68
POW-TPower Corp of Canada $36.46
STEP-TSTEP Energy Services Ltd. $3.51
TXP-TTouchstone Exploration Inc. $1.27
TOU-TTourmaline Oil Corp $64.01
TRZ-TTransat AT Inc $5.11
TCW-TTrican Well Service Ltd $3.66
NEGATIVE BREAKOUTS
AQN-TAlgonquin Power & Utilities Corp $10.47
ACO-X-TAtco Ltd $38.56
BLX-TBoralex Inc $35.02
CU-TCanadian Utilities Ltd $33.82
CPX-TCapital Power Corp $40.41
CRRX-TCareRx Corp. $2.15
CUP-U-TCaribbean Utilities Company Ltd. $12.14
CGG-TChina Gold International Resources Corp. $4.81
ECN-TECN Capital Corp. $2.62
FN-TFirst National Financial Corp $36.75
GEI-TGibson Energy Inc $20.60
GCG-A-TGuardian Capital Group Ltd $41.65
JWEL-TJamieson Wellness Inc. $28.79
MDI-TMajor Drilling Group International Inc $8.67
NPI-TNorthland Power Inc $26.67
NOU-XNouveau Monde Graphite Inc. $3.96
PPTA-TPerpetua Resources Corp. $4.50
SAP-TSaputo Inc $28.15
SOY-TSunOpta Inc. $8.43
WPM-TWheaton Precious Metals Corp. $55.21

Sources: Bloomberg, The Globe and Mail

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

This report should not be considered an investment recommendation.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 16/04/24 4:00pm EDT.

SymbolName% changeLast
BPF-UN-T
Boston Pizza Royalties Income Fund
+0.45%15.76

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