Description

At $3.20, SZ shares trade at a deep discount to the restaurant group.

Current enterprise value represents only 0.3x revenues and 3.9x ebitda (cheapest in the restaurant industry that I am aware of).

Group average of 7x ebitda for small cap restaurants puts the shares in the $5-6 range. KFC assets in Australia generate greater than $14 million in annual ebitda. At 7x ebitda, the KFC assets are worth $3 per share on their own. This provides a solid base at current price levels.

Balance sheet continues to improve since Chapter 11 filing a few years ago. Debt to total capital is in the 38% range, but there is enough cash on hand to nearly eliminate borrowings, if desired.

Growth vehicle is a fast casual concept called Pat & Oscar's. P&O is coming off a highly publicized food borne illness case in late October and comps have slumped (down more than 25% in Jan-04 quarter). After confering with company, P&O's should see sales slowly stabilize in the next two quarters and show significant comparison increases by the end of 2004. Need to be somewhat patient on this, but could generate some interest by this summer.

Pat & Oscar's is a place to get great food and excellent service every time you come in. It is a place you can depend on for quality meals that are prompt, but not rushed. Pat & Oscar's is also a restaurant that caters any sized event with fresh, hot, quality food and an impeccable attention to detail. See website: http://www.breadstick.com/

Ten years ago Pat & Oscar had a vision: to make great tasting, homemade food from the freshest, highest-quality ingredients and to serve it quickly in a clean, relaxed and friendly atmosphere. Pat & Oscar have brought that vision to life and to have had it so well received by guests and food critics. Today there are over 20 restuarants spread through California, and Arizona - with plans for both company and franchise growth
for 04' and 05'.

No brokerage research coverage but there is enough liquidity for small funds to take positions.


Tkr TEV F2003 F2004 F2005 F2003 F2004 F2005
DAVE 82 0.83x 0.74x 0.68x 8.76x 7.76x 6.81x
RUBO 49 0.40x 0.37x 0.35x 11.88x 5.46x 4.82x
BYBI 41 1.05x 1.00x 0.90x 9.29x 7.91x 6.52x
MAIN 87 0.39x 0.39x 0.37x 6.06x 5.87x 5.38x
GMCR 159 1.36x 1.19x 1.06x 8.64x 7.64x 6.86x
CMPP 140 0.77x 0.65x 0.58x 8.75x 6.66x 6.09x
DAB 232 0.64x 0.62x 0.58x 4.48x 4.25x 4.01x
FRS 202 0.86x 0.78x 0.71x 7.00x 6.31x 5.78x
TENT 132 1.10x 0.91x 0.77x 7.08x 5.81x 4.90x
CHKR 142 0.76x 0.74x 0.74x 7.14x 6.61x 6.58x
SZ 94 0.32x 0.29x 0.28x 4.07x 3.95x 3.58x
BNHNA 158 0.83x 0.78x 0.70x 6.73x 6.07x 5.52x
FRN 278 0.48x 0.47x 0.46x 5.04x 4.94x 4.86x
SWRG 73 0.78x 0.67x 0.59x 18.21x 12.86x 10.37x
BUCA 150 0.58x 0.55x 0.55x 8.50x 8.48x 8.37x
COSI 56 0.53x 0.53x 0.52x nmf nmf nmf
LUB 156 0.49x 0.52x 0.52x 8.04x 7.79x 7.32x
CKR 807 0.59x 0.58x 0.56x 6.76x 6.82x 6.10x
STAR 626 1.03x 1.02x 1.01x 10.87x 10.59x 10.14x

Average 0.73x 0.67x 0.63x 8.18x 6.99x 6.33x

Catalyst

At 7x ebitda, the KFC assets are worth $3 per share on their own. This provides a solid base at current price levels.

Wallstreet picks up coverage - - in any form could be a positive for this stock.