|Shares Out. (in M):||19||P/E||16.9x||13.1x|
|Market Cap (in $M):||1,531||P/FCF||12.1x||7.7x|
|Net Debt (in $M):||1,295||EBIT||283||297|
Dine Equity (DIN) is a high quality but low growth business on the cusp of a very positive shift in capital allocation, which I expect to be communicated on their Q3 earnings call on 10/28/14. This is a high conviction, hard catalyst idea which could drive 25% upside in the next couple weeks. I’m guessing there are a few funds who could use a little help this month…
DIN has been written up before, so I will keep the business overview brief. This business was previously known as IHOP) prior to their acquisition of Applebees in late 2007. Julia Stewart, the current CEO of DIN, originally became CEO of IHOP in 2002. She refranchised the remaining company owned units and adjusted the business model to reduce capital intensity significantly (only ~$10mm of capex/year). It was a cash flow machine and between 2003-2007, they returned 100% of FCF to shareholders through dividends and share repurchases.
In late 2007, they completed the acquisition of Applebees in a transaction that more than doubled the size of the company. They levered up to 7x Debt/EBITDA just at the beginning of the financial crisis, and almost bankrupted the company. But they executed well on their refranchising of Applebees and completed the asset sales and deleveraging by the end of 2012. They are now a 99% franchised model with leverage of 4.6x and EBITDA growth of ~4%. They initiated a $.75 quarterly dividend in early 2013 and have purchased 7% of their stock since then. But the real inflection on capital allocation is right around the corner.