Boston Pizza Royalty Units Updated August 13, 2017

Our report on Boston Pizza Royalty units is updated and rated Buy at $21.12.

There has been modest weakness in same-store sales, which is by far the main driver of distributable cash per unit, in the past year due to weakness in Alberta and Saskatchewan. I would expect some modest growth going forward as they lap the poor quarters of the past year. Higher interest costs will be a small drag on distributable cash as they have some modest debt. The main impact of higher interest rates, should that occur, would be a decrease in the P/E ratio for a given level of distributions. In other words higher interest rates could push the price of the units down even if the distributions rise somewhat. But I view a 6.5% cash distribution that could rise (it could fall but that seems unlikely) as attractive even in the face of interest rates that will likely rise moderately. For those seeking dividends, especially in taxable accounts, I believe these units have a place in a portfolio.