WEN's spinoff Tim Hortons to IPO

**springsnailt** Thu Mar 16, 2006 12:52 pm

WEN's spinoff Tim Hortons to IPO
PO VIEW-Analysts queasy about Tim Hortons IPO
Fri Mar 3, 2006 8:49 PM ET

By Euan Rocha

NEW YORK, March 3 (Reuters) - The new issue market has proven hungry for the recent offering from Chipotle's. But limited growth prospects for coffee and baked goods chain Tim Hortons may curb investor appetite for its initial public offering.

Tim Hortons, which is owned by Wendy's International Inc.(WEN.N: Quote, Profile, Research), plans to offer up to 29 million shares, according to its prospectus.

Francis Gaskins, president of IPO Desktop, an independent research firm, said "Tim Hortons is at the top of its game right now, they do have a growth plan, but there is not much of an encore."

It's tough for them to grow in most of their geographic areas and very soon their markets will be saturated, he added.

According to a filing with the U.S. Securities and Exchange Commission Tim Hortons has 2,885 outlets across North America, with 2,597 stores in Canada and the remainder located in the United States.

In a research note, Piper Jaffray & Co. analyst Peter Oakes says "Tim Hortons Canada already sports a per capita unit penetration level double that of McDonald's USA." Oakes suggests that this makes it highly unlikely that the company can grow much more in Canada.

Tim Hortons says its long term goal is to have between 3,500 to 4,000 system restaurants in Canada and 500 system restaurants in the United States.

Analysts expressed concern regarding these growth targets given that the company has limited growth potential in Canada and only plans to add another 212 outlets in the United States by the end of 2008.

David Menlow, president of independent research firm IPOFinancial.com said his primary concern is that Tim Hortons does not have a significant presence in the United States.

"If there was a bigger push into the U.S. market there would probably be more excitement attached to this (IPO)." Menlow said.

Wendy's will initially retain a majority 85 percent stake in the company, but it plans to spin off its entire stake in Tim Hortons by Dec. 31.

Analysts say that investors also ought to be apprehensive about this, as almost 160 million shares will enter the market in a short span of time after the IPO.

ATTRACTIVE SECTOR

The Tim Hortons offering comes close on the heels of Macdonald's Corp's. (MCD.N: Quote, Profile, Research) IPO of its subsidiary Chipotle Mexican Grill.

Chipotle, which listed earlier this year, saw its share price more than double to $45 a share, in its market debut.

Burger King Holdings Inc., parent of the second-biggest hamburger restaurant chain, also announced an offering earlier this year.

But, analysts say it is unlikely that Tim Hortons initial public offering will mirror the sharp growth that the Chipotle Mexican Grill Inc. (CMG.N: Quote, Profile, Research) shares saw after their IPO this year.

Oakes in his research note says "The embedded valuation for Tim Hortons suggests a Chipotle-like reception to the IPO, when Tim's growth prospects are substantially less."

Nevertheless, the restaurant sector as a whole has performed well this year. The restaurant component of the Standard and Poor's 1500 index <.GSPREST> is up 7.93 percent year-to-date, while the S&P 500 index <.SPX> has risen just 3.25 percent this year.

Starbucks Corp. (SBUX.O: Quote, Profile, Research), which is in the same business category as Tim Hortons, has also seen its stock perform well over the last few months. Starbucks shares are up almost 20 percent year-to-date and it has carried a lot of the momentum on the S&P restaurant index this year.

This is in contrast to last year, when restaurant IPO's didn't perform well. Shares of Caribou Coffee Co. Inc. (CBOU.O: Quote, Profile, Research) and Kona Grill Inc. (KONA.O: Quote, Profile, Research) have both declined more than 10 percent since their market debuts in 2005.

But, Francis Gaskins, president of IPOdesktop.com said this is unlikely to be the case with Tim Hortons due to its positioning in Canada.

"It (Tim Hortons) is a market leader in Canada and it has a tremendous brand in Canada and company's that have well known brands can do it." he said. (Additional reporting by Nichola Groom and Scott Malone)