McDonalds - Seems like a great Investment

[ROE]

Hi All,

Out of interest I have been doing some research on Mc Donalds Corp, And the more I learn about this company the more I believe it is a fantastic company to invest in.

Does anyone Here own stock in Mc Donalds.

I am thinking of putting about $100K into Mcdonalds with an investment timeframe of around 10years.

Nope, Only have DMP and RFG 2 or 3 years back still have them though.

If that where you want to put your money, wouldnt be too hard to buy via any broker, the brokerage fee may be a little bit more but that is about it and
you have to fill in a whole bunch of paper for the IRS.

 

[Tysonboss1]

If that where you want to put your money, wouldnt be too hard to buy via any broker, the brokerage fee may be a little bit more but that is about it and
you have to fill in a whole bunch of paper for the IRS.

I have decided that I do like the stock and have a target price,

But I am now just working through all the details of the finer points that will affect international investments like currency changes etc.etc this will be my first international investment out side of managed funds so I am taking a cautious approach and trying to learn as much as possible.

 

[prawn_86]

But I am now just working through all the details of the finer points that will affect international investments like currency changes etc.etc this will be my first international investment out side of managed funds so I am taking a cautious approach and trying to learn as much as possible.

Yes you will now be exposed to both market risk from the stock and also currency risk. For an amount of that size i would suggest you look into some hedging options such as a forward or even a currency option.

It can get difficult if you are investing for the longterm however as most forex forwards are only a yr in advance

 

[ROE]

Personly I dont know why people bother with oversea stock unless you control
some crazy amount of money (I'm talking about Billions) and want to spread your investment a little wider.

There are some exceptional business in Australia that can generate enormous wealth for their share holders.

I can easily invest 50 Millions in Australia in a dozen or so stocks

You face many uncertainty and risk investing in oversea market.

currency movement, tax laws, understanding their accounting rules and reporting seasons etc.....

For $100K it's just not even worth the effort.....I have that much money in one small cap stock like CCP
My 2 cents

 

[Tysonboss1]

Personly I dont know why people bother with oversea stock unless you control
some crazy amount of money (I'm talking about Billions) and want to spread your investment a little wider.

There are some exceptional business in Australia that can generate enormous wealth for their share holders.

I can easily invest 50 Millions in Australia in a dozen or so stocks

You face many uncertainty and risk investing in oversea market.

currency movement, tax laws, understanding their accounting rules and reporting seasons etc.....

For $100K it's just not even worth the effort.....I have that much money in one small cap stock like CCP
My 2 cents

I wouldn't normally go out of my way to invest over seas either, and as I said my research into mcdonalds only started out of interest, I wasn't activily looking for an over seas investment,

But I have never come across a company listed on the ASX quite like mcdonalds,

 

[Krusty the Klown]

But I have never come across a company listed on the ASX quite like mcdonalds,

The only one I can think of would be CCA. Stable global brand, but different business model.

 

[ROE]

Despite what RE love to call McDonald a Real Estate company, it's not
it is in the business of selling fast food and franchise system.

this cash cow provide them the cash flow they need to be in the business and paid out dividends.

The only reason they hold property is to control a stable environment for their
franchisee and not at the wim of the landlords...

Taking out the fast food business those property worth no more than those assets in listed property portfolio and the return will be nothing more than those of listed property trust.

but taking out property and leave the fast food business intact it still can generate far greater return.

Wesfarmers do the same thing with Bunnings warehouse.

Property investment is a terrible return on equity ... (it's only a decent number with high leverage)

and I leave them at that...other may disagree and think its greatest since man invent machine and that is fine I'm happpy to see that view.....everyone entitle to their view

MCD isnt bad but why mess with foreign market, when there are many business in Australia that generate far more return than mcdonals for their shareholders and they dont own properties, they use free cash flow to expand the business that generate FAR FAR greater return in Equity....I give you some examples that I directly know.

Mcdonals

1990 - Now
9.0 - 62.40
20 year span around 10% return a year

10 year time span the return is not as stella
30 - 62.40 around 7%

McDonal is one of America Great Company, let see how it's fare with Australia
great I have share in some of these.

Reece 20% return a year for 10 years
Woolworths 20% a year for 10 years.
The Reject shop 50% return a year since float.

and there are the former heroes that fall from grace and back again like
Credit Corp and Flight Center... these rock solid business provide return people only dream off in speculative mining

stocks...but you cant measure it due to short time frame...400% return is very nice and I welcome it but I know it's an unrealistic number in the long run something like REH and WOW return is more realistic.

DMP and RFG is the closest listed franchise system to MCD again these are just starting out and I like to get involve early once I can reasonably confident of the business model and where I see it 10 years from now.
and look at their early records it deliver stella return average 40% - 50% a year ... (it's following the TRS path)

With the right mind set and buying at the right price you can get Stella return in your local backyward then you can sit back and drink nice coffee,

then every 10 years the market throw you once in a life time bargain
which compounding the investment return on multiple times over

but good luck with your MCD adventure and hope you find future Stella return..

 

[DB008]

Re: Mc Donalds - Seems like a great Investment

Tysonboss, have you looked at Burger King.

McDonalds flagship burger, the Big Mac is a disgrace, it should be renamed the Mini Mac or alternatively the Sub-Junior Burger

I agree. I rarely east fast food, but when l do, it's usaully an emergency. So, about 6 months ago, l was in a situation where l had no other choice l decided to order a "Big Mac". To my surprise, it was TINY. I thought to myself, my hands haven't grown that much since l was a kid. It's half the size of the Whopper, @Burger King. A Whopper Jnr might even be bigger!

Sausage and Egg McMuffin. Thats not a sausage, it's a rissole!

 

[Tysonboss1]

Despite what RE love to call McDonald a Real Estate company, it's not
it is in the business of selling fast food and franchise system.

Mcdonalds collects more in rent from their franchises than they do franchise fees, So they are partly a realestate company.

Owning the realestate gives mcdonalds an added revenue stream in the form of rent, that most others in this business don't have, owning real estate has also given them a beter credit rating over the years and allowed them to finance their business at lower rates than others in the business.

 

[Krusty the Klown]

MCD isnt bad but why mess with foreign market, when there are many business in Australia that generate far more return than mcdonals for their shareholders and they dont own properties, they use free cash flow to expand the business that generate FAR FAR greater return in Equity....I give you some examples that I directly know.

Mcdonals

1990 - Now
9.0 - 62.40
20 year span around 10% return a year

10 year time span the return is not as stella
30 - 62.40 around 7%

McDonal is one of America Great Company, let see how it's fare with Australia
great I have share in some of these.

Reece 20% return a year for 10 years
Woolworths 20% a year for 10 years.
The Reject shop 50% return a year since float.

These return comparisons are all well and good but they don't address any risk tradeoff's.

Woolworths I could agree with you but a local plumbing supplier and a small retail homeware chain are not as secure a business as a global giant like Macca's - a different business model in multiple markets.

Macca's has a virtually guaranteed global market compared to these other two small ventures trying to gain a foothold in their specialised markets.

As you said they are doing well, but one is less than 10 years old and another about 30 years old, MCD is over 60 y.o. with stable growth.

I can't see Macca's going bankrupt any time soon. Businesses the size of Reece and the Reject Shop can come and go very quickly.

But, if the business is in your risk comfort zone ..... go for it.

 

[Krusty the Klown]

Mcdonalds collects more in rent from their franchises than they do franchise fees, So they are partly a realestate company.

Owning the realestate gives mcdonalds an added revenue stream in the form of rent, that most others in this business don't have, owning real estate has also given them a beter credit rating over the years and allowed them to finance their business at lower rates than others in the business.

"I'm not in the hamburger business, I'm in the real estate business." Ray Kroc, first CEO who bought the original McDonalds store from the McDonald brothers and then proceeded to build one or two more stores........

 

[Tysonboss1]

but good luck with your MCD adventure and hope you find future Stella return..

I am not banking on a "stella" return, Just steady consistent Dividends and capital growth,

As I said it's the whole package that attracts me to mcdonalds, It's the capital magangement, the global brand, the realestate stratergy, the franchising model, the mature business, the sheer scale of operations, the adaptabilty, etc etc.

I haven't yet found an equal on the asx,... But I am not saying their aren't better businesses on the asx or companies that sell better products but it's the full package of maccas that attracts me.

As far as donut king goes it can hardly be compared to maccas,

 

[Tysonboss1]

The only one I can think of would be CCA. Stable global brand, but different business model.

I like Coca colas brand dominance however I would rather invest in the Coca Coca company rather than one of the bottling franchises such as CCA

 

[Wysiwyg]

Buying a snack from a take-away without having to leave the vehicle is what appeals to me as a consumer. The large pictures of products for sale is a clever marketing strategy because the consumer thinks the item is bigger than it really is. Only to be handed an ever decreasing sized miniature version after paying for it. Opening their store hours to 24 appeals to me because I can avoid the car queues if feeling peckish during the usual sleeping period.
I don't recommend cheese, meat pattie, bun, sauce and potatoe (cheese burger & fries) to the health conscious after midnight though.

 

[ROE]

"I'm not in the hamburger business, I'm in the real estate business." Ray Kroc, first CEO who bought the original McDonalds store from the McDonald brothers and then proceeded to build one or two more stores........

Sales by Company-operated restaurants $16,561
Revenues from franchised restaurants $6,961
Total $23B in Revenue

out of that figure $6,961, $4,612.8 is coming from rent.

I think the CEO doesnt know how well a good business generate cash, he's too fixate on hard asset like property.

Selling burger and franchise system generate 4 times the money
it get from rent

Was they to invest those excess cash in expanding the business they may get
many times the return

or if they like property they can give it to the expert, uncle Frank Lowy they can buy shares in Westfield and get stella return, WDC since 1960, 15% return a year... ooops better than uncle Mac himself...at 13.5% since it listed in 1978

I like WDC in early days and I like it alot more when Mr market throw it for $10.50 and tar it with the same brush as other listed RE trust

 

[Krusty the Klown]

I like WDC in early days and I like it alot more when Mr market throw it for $10.50 and tar it with the same brush as other listed RE trust

No arguments from me on that call.

 

[Tysonboss1]

I think the CEO doesnt know how well a good business generate cash, he's too fixate on hard asset like property.

Selling burger and franchise system generate 4 times the money
it get from rent

Was they to invest those excess cash in expanding the business they may get
many times the return
)

alot of the time When they sell a new franchise they basically get the property for free.

Picture this, they buy a piece of land for maybe $300,000 and spend another $400,000 on a building and fit out, they then sell the franchise to a franchisee for up to $1M,

So in effect the franchisee has paid for the land and the building that is now owned by mcdonalds, and mcdonalds charges them rent and a sales royalty for the life of the business.

The real estate idea was first thought of by Harry Soneborn and even Ray Kroc who later in life had a falling out with Harry said that the real estate stratergy is what made Mcdonalds the power house it is today.

 

[Tysonboss1]

I like WDC in early days and I like it alot more when Mr market throw it for $10.50 and tar it with the same brush as other listed RE trust

I like WDC as well, I have nearly $500K in WDC already.

I would however like WDC to do a few things before I would say they had the whole package though, mainly in regards to capital management.

1. I would like them to cancel the DRP
2. I would like them to reduce the dividend payout ratio to about 50% of free cashflow instead of 100% (this is already on the cards for fin year 2010)
3. With the retained free cashflow I would like it to be split into 2 areas, 1, investing in new developments and clearing debt,.. 2, a permanent systematic share buy back scheme.

 

[ROE]

These return comparisons are all well and good but they don't address any risk tradeoff's.

Woolworths I could agree with you but a local plumbing supplier and a small retail homeware chain are not as secure a business as a global giant like Macca's - a different business model in multiple markets.

Macca's has a virtually guaranteed global market compared to these other two small ventures trying to gain a foothold in their specialised markets.

As you said they are doing well, but one is less than 10 years old and another about 30 years old, MCD is over 60 y.o. with stable growth.

I can't see Macca's going bankrupt any time soon. Businesses the size of Reece and the Reject Shop can come and go very quickly.

But, if the business is in your risk comfort zone ..... go for it.

What is risk?

1. Higher risk = higher return?

This is crab, I can buy stock that has little risk and offer bloody good returns...

to me risk is NOT if the stock is a mid cap or small cap stocks or have high beta or what ever industry generalise.

To me stuff is risky if I buy something I'm clueless or lazy or I still buy even thought it didn't pass my ten commandments of investment.

and I'm human and sometimes I do get lazy.

Once a stock pass my ten commandment it provides little risk and deliver great return

Very few stocks pass the ten commandments so I buy and I buy lot if and when it does..

I read lot of bankruptcy company annual reports and I run my 10 commandments over it and it failed many Not a single company pass the 10 commandments and ever gone bankrupt

I can tell you TRS and REH going to be around long before you and I left this planet if you think small is risky .

 

[Tysonboss1]

In the book, McDonald’s: Behind the Arches, Love (1995) the secret was revealed: “What converted McDonald’s into a money machine had nothing to do with Ray Kroc, or the McDonald brothers, or even the popularity of McDonald’s hamburgers, french fries, and milk shakes. It was Harry J. Sonneborn.”

“McDonald’s real moneymaking engine was its little-known real estate business, Franchise Realty Corporation; envisioned and created by Harry Sonneborn. The obscure McDonald’s alter ego company was based on Sonneborn’s unique even lesser known financial formula.”

Just months before Ray Kroc died, he commented “Harry alone put in the policy that salvaged this company and made it a big-leaguer. His idea is what made McDonal’s rich.”