Jordan ZinbergA&W Revenue Royalties Income FundAW.UN.TOCOMMENTJan 15, 2024

AW.UN is a fundamentally strong fund, and is primarily an income stock. It has a yield of 5.8%, has grown its distributions by 3% annually over the past 10 years, and is reasonably valued at these levels. We feel that investors have opted to purchase 'risk-free' cash investments that have a similar yield to AW.UN, but much less risk given the changing interest rate environment. Although, we don't believe that this trend will last forever, and AW.UN has more upside potential than money market funds. For an investor looking for yield and a stable cashflow-generating business, we like AW.UN here and feel that it's at a good valuation today. 
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AW.UN is now trading at 16x times' P/E. In the 2Q, AW.UN’s royalty income grew 4.8% to $12.8M compared to last year of $12.2M and same-store sales growth remains positive at 2.5%. Distributable cash per unit grew slightly 3.5% to $0.497, compared to last year of $0.48. The balance sheet is okay, with net debt of $35M. Total debt is around 1.3x times trailing twelve-month cash flow of $27M. AW.UN’s growth is quite resilient, the company has demonstrated pricing power in inflationary periods in recent years to maintain profit margins.

Compared to the industry, AW.UN is quite attractive, trading at only 16x, with consistently positive same-store sales growth and store openings. Unlike other restaurants, AW.UN did not make any recent acquisitions, and most of the earnings are paid out as distributions. We expect the company will continue to raise distributions due to the resilience in the franchise and its track record of value creation.
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They announced a two year pilot to introduce the Pret brand in its restaurants. It would offer customers an alternative and the brand is popular abroad. A good move overall to diversify. Unlock Premium - Try 5i Free

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Likes the name and would be fine adding to it at current levels. Is well positioned and the management team is good. Results were okay last quarter, all things considered. Worst is most likely over. Unlock Premium - Try 5i Free

Will people be scared to eat out during the coronavirus scare? It's a great business. He likes the royalty model, because they can grow in a capital-lite fashion, meaning not beholden to huge capital expenditures. To increase stores, the franchisees pay for that, but they can't benefit from same-store sales growth. They're good at expanding locations and menu offerings that are popular and innovative like wild cod fillet and the Beyond Meat burger. The dividend is safe. Maybe the virus will effect them, but not for long and that will pressure only one quarterly report. Long run, no, the virus won't have an impact. After 9/11, people said no one will fly again, but years later, airlines were hot stocks.