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Softlogic Restaurants (Pvt) Ltd, a franchisee of Burger King Worldwide, Inc. (BKW - Analyst Report), has recently unveiled three restaurants in Sri Lanka. The three restaurants, located in Rajagiriya, Mount Lavinia and Colpetty, mark the entry of the brand in the country.  

BK AsiaPac Pte., a subsidiary of Burger King, had entered into a master franchise and development agreement with its franchisee, Softlogic Restaurants Ltd in Sep 2013 to develop, open and operate Burger King Restaurants in Sri Lanka. BK AsiaPac Pte. Ltd. and Softlogic Restaurants Ltd together plan to expand the supply chain infrastructure in Sri Lanka which will pave the way for new restaurant openings in the country.

Burger King is committed to step up international expansion in high-growth potential markets mainly through franchising. Of late, the company has initiated ventures in key markets like Russia, China, Mexico, France, Central America, South Africa, Singapore, Malaysia, Korea and Vietnam.

Last month, the company inked a joint venture deal with restaurant operator Groupe Olivier Bertrand in France. Per the deal, Groupe Olivier Bertrand will act as Burger King’s long-term master franchisee and developer of 250 restaurants across France. Prior to that, the company entered into a joint venture agreement with Everstone Group, a private equity and real estate firm in India. Per the alliance, Everstone will act as Burger King’s long-term master franchisee and developer of new restaurants across India.

We believe franchising a large portion of its system will facilitate the company’s earnings and return on equity growth, as it reduces capital requirements. The company’s franchised business model allows it to generate strong free cash flow, thereby helping it to maintain a healthy balance sheet. Moreover, international expansion through franchising helps increasing brand recognition and enhancing shareholder return.

Going forward, we expect the company to remain well positioned on the back of new product introductions, restaurant upgrades, proper marketing mix and improved operations. Despite the positives, a weak consumer spending environment, uncertain economic conditions in Europe and slowdown in a few emerging markets remains matters of concern.

The company presently has a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry include Darden Restaurants, Inc. (DIN - Snapshot Report), Buffalo Wild Wings Inc. (BWLD - Analyst Report) and Brinker International, Inc. (EAT - Analyst Report). While Darden Restaurants carries a Zacks Rank #1 (Strong Buy), Buffalo Wild Wings Inc. and Brinker International have a Zacks Rank #2 (Buy).

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