October 15, 2014 - 9:43pm EST by
2014 2015
Price: 80.00 EPS $4.74 $6.10
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 $M): 1,295 EBIT 283 297
TEV ($): 2,826 TEV/EBIT 10.0x 9.5x

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  • Franchised Restauarants
  • Dividend yield
  • whole business securitization
  • Analyst Coverage
  • Positive Earnings Revision
  • Refranchising
  • Restaurant Operators


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.

DIN had some expensive high yield bonds they issued in 2010 at a 9.5% coupon that were non-callable until October 2018. The $760mm HY bond issue represented more than half their debt and about half of their market cap. On September 30, 2014, DIN completed a $1.3B whole business securitization at a very attractive rate of 4.277%. This decreased cost of their financing will drive 25% upside to street estimates and should result in a material increase in the dividend and guidance when they announce results in a few weeks. There is limited analyst coverage, and I don’t believe the magnitude of the beat is anywhere close to priced in. I believe they will raise the dividend to $5.00/share and DIN would likely trade between a 4-5% dividend yield, or $100-$125 vs $80 today. That would represent 25-56% upside vs the current stock price. The balance of the FCF would be used to buy stock and drive earnings growth.
A table showing the capital structure and the upside to numbers is shown below.
I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


Bond refinancing (already completed) with drive a big earnings revision and increase in the dividend, which should be announced by the end of October.
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