Blessed by the Potato

I was bullish on Priszm (QSR.UN) for a long time the last two years, the thesis being that even in a recession, people still need their 11 herbs and spices fortnightly, and that there were fairly decent levels of cash being generated, even after the declines that were taking place. Unfortunately, I ignored the little voice that had lost confidence in management after whip-sawing their distribution all over the place every few months (3 cents! 10 cents! 5 cents! 1 cent… nothing!).

The last annual report was 80-some pages and put up as a nice PDF… this last quarter’s was faxed and then scanned or some godawful thing. No conference call, either, which I can only assume is bad news.

Buried in that tough-to-read garbled mess is a little line saying that their current lender (who is never identified in anything I can find) will not be renewing their loan in December. They find a new lender, or die basically. With a new loan, their debt:equity will be over 1, so it may be hard to find a lender, or at least get an interest rate that keeps them in business.

Now, last year they generated $0.50/share in distributable cash. Even with negative tangible book value that’s pretty damned sexy for a stock trading at $0.89.

However, they’ve been a steaming pile of failure the last few years. They whipsawed investors around with the distribution; they’ve provided zero clarity on the issues of renewing this loan; they haven’t announced their plans for post-2011 (perhaps because they’ll be out of business?); and of their earlier plan to sell 147 under-performing locations, only something like 21 actually got sold.

If they do manage to find attractive refinancing (and renegotiations of their franchise agreements) that lets them go back to generating (and distributing!) cash, then I may get consider getting back in, but for now, they look to be too close to the brink of bankruptcy for me, soI’m taking my 86% loss and getting out.

And remember: you don’t have to make it back the same way you lost it.