Sunday, May 7, 2017

An AIM Equity Fund holding: Bojangles (BOJA) by Connor Konicke. “Check Out Bonjangle’s Menu - More Than Meat and Potatoes"

Bojangles, Inc.  (BOJA, $22.00): “Don’t Count Bojangle’s Out”
By: Connor Konicke, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Bojangles, Inc. (NASDAQ: BOJA) is a holding company that operates as a fast food restaurant chain in the Southeastern region (North Carolina, South Carolina, Georgia, Virginia, Tennessee, Alabama, Florida, Maryland, Kentucky, Pennsylvania, and Washington D.C) of the United States. As of year end December 2016, BOJA had 716 restaurants as of December 31, 2016, of which 309 were company-operated, while the other 407 were franchised.

• Founded in Charlotte, North Carolina in 1977, BOJA offers a cajun inspired menu and is most famous for their hand-breaded chicken, made-from-scratch buttermilk biscuits, legendary iced tea and breakfast daypart.

• As of year end December 2016, BOJA has experienced 27 consecutive quarters of system-wide comparable restaurants sales growth which is attributable to BOJA’s iconic brand and cult like following from their Bo Fanatics.

• BOJA’s iconic brand has built a cult-like following (Bo Fanatics) by providing differentiated, craveable food.

Key points: BOJA’s has experienced significant growth throughout the southeastern region of the United States and will continue to do so throughout 2017 and 2018 as they have recently signed two new restaurant development agreements. On March 22, 2017, BOJA entered into a development agreement with VABO, Inc. to open four new restaurants in the Chesapeake, Portsmouth and Virginia Beach regions of Virginia. As of April 26, 2017, BOJA entered into an agreement with new franchisee MSR Restaurants, LLC. to open multiple restaurants over the next several years in the metro area of Washington D.C. Washington D.C has seen tremendous growth, with a 79,000 resident increase since 2010, averaging 900 new residents per month. Virginia has grown 5.1% since 2010 reaching an estimated population of 8.4M by July 2016.

BOJA’s breakfast daypart segment continues to show dominance as consumers eating habits are more habitual than other meals. From September 2010 to September 2016, breakfast dollars spent rose at a CAGR of 4.6%, from $57B to $75B. In addition, BOJA’s quick service restaurant (QSR) morning meal daypart has grown at a 6.1% CAGR from $39B in September 2010 to $56B in September 2016. What will continue drive BOJA’s breakfast daypart growth is the changing consumer preferences of millennial’s. Millenial’s desire value, convenience, and variety, all of which is incorporated in BOJA’s business model. BOJA includes extensive menu items, variety of limited time offers, all at the convenience of the customer.

BOJA brings the most competitive characteristics of quick service restaurants (QSR) and fast casual dining by providing customers quality food with speed, convenience and value. As BOJA faces headwinds from sluggish restaurant sales, BOJA is well positioned as they continue to tailor to changing consumer preferences and look to increase convenience by adopting to mobile order and payment solutions.

What has the stock done lately?
Since the start of 2017, the stock has traded up 17.96% to $22.00 per share as BOJA’s stock price has exceeded analyst expectations of $21.18 per share. BOJA traded down ~9% in after hours today, May 2, 2017, after reporting earnings. BOJA exceeded EPS expectations by $0.03, but missed revenues by $1.76M.  Despite first quarterly revenue misses, BOJA’s quarterly revenue increased ~3.0% YoY.

Past Year Performance: BOJA has increased $4.39 or 24.93% in value over the past year. BOJA 52-week H/L ranged from $14.55-$22.35. This appreciation in value is driven by store expansion into high population growth states (North Carolina, South Carolina, Georgia, Virginia, and Washington D.C), along with 27 consecutive same store sales growth.  BOJA currently trades at 22.0x P/E which is significantly below comparable peers of 32.2x.

Source: FactSet
My Takeaway
Despite recently surpassing their price target of $20.20 and headwinds from restaurant sales, I believe BOJA’s expansion into high growth regions in Virginia and Washington D.C. and tailoring to millennial preferences will continue to drive growth. Successful implementation of mobile order and payment solutions in 2017 and high demand for limited time offer menu times will continue to drive demand for BOJA’s.

Source: FactSet

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