Papa John

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Papa Johns Pizza Update
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Introduction

• Papa Johns is a relatively small growth company
  that fits the investment policy statement like a
  glove.
• The company has a superior product and more
  focused strategy than its competition.
• The company has been reporting positive financial
  results since its inception, yet is currently
  undervalued.

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Recent Stock Info

• Last Trade 26.06
• 52 Week High 44.5
• 52 Week Low 19
• P/E Ratio 15.59
• Beta .95
• Market Cap 630.8M
• Purchase Price 26.56

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Background

• Papa Johns has operations in 47 states, the
  District of Columbia, and five international
  markets such as Mexico and Puerto Rico.
• At present, there were 2,345 Papa Johns
  restaurants in operation of these, 573 were
  company owned.
• Through the acquisition of Perfect Pizza Holdings
  Limited in the U.K., Papa Johns increased its
  international presence by an additional 206
  stores, 12 of which are company owned.

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How Papa Johns Makes Money

• Roughly 50 of all Papa Johns revenue comes from
  sales of menu items at company owned restaurants.
• About 6 of revenues come from franchise
  royalties, franchise fees, and development fees.
• 40 of Papa Johns revenues come through
  commissary sales to both company and franchised
  stores.
• The remaining revenues come from equipment and
  other sales.

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The Secret to Their Success

• Papa Johns has experienced phenomenal success by
  doing what they do best Making Pizza.
• The only items Papa Johns offers on its menu are
  pizza, bread sticks and cheese sticks.
• The company prides itself on the use of only the
  finest ingredients including fresh dough (not
  frozen), 100 real cheese, and canned,
  vine-ripened tomato sauce (not concentrate).
• The company only offers carry-out and delivery
  service, allowing the focus of each store to be
  solely concentrated on making their products.

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Pizza Hut. REJECTED!!!

• On August 12, 1998, Papa Johns was sued by its
  largest competitor, Pizza Hut, Inc.
• Pizza Hut claimed that the slogan Better
  Ingredients. Better Pizza. constitutes false and
  deceptive advertising, a violation of the Lanham
  Trademark Act.
• Pizza Hut lost the suit in September.

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Where Does the Papa Go From Here?

• Papa Johns is a growth company, and it plans on
  living up to its classification.
• The company plans to open 35 more company
  restaurants this year and acquire from 60 from
  existing franchisees.
• Additionally, the company expects franchisees to
  open nearly 375 restaurants new restaurants this
  year.

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• Domestic market expansion is planned for the
  upper Northeast Coast, West Coast and Rocky
  Mountain regions.
• The company also plans on further penetration of
  existing markets in the U.S.
• Internationally, Papa Johns is focused on
  Mexico, Puerto Rico, Venezuela, Costa Rica,
  Guatemala, Saudi Arabia, Canada, Iceland and the
  United Kingdom.
• Regarding expansion in the U.K., restaurants may
  be opened under the name of either Papa Johns or
  Perfect Pizza, but within three years all of the
  Perfect Pizzas will converted to Papa Johns
  stores.

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Change in Debt Structure

• Broad approved 225 million dollars for stock
  repurchase program
• Went from virtually 0 long term debt to 119
  million dollars
• Bank loan with 3 year collar between LIBOR 85
  basis and prime
• We are not concerned because the company has over
  80 million dollars in FCF

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Balance Sheet Assets
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Balance Sheet L OE
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DCF

• Conservative long term 8 growth rate
• Pro forma income statements
• Updated WACC to include new debt structure
• Value of firm per share of 40.85