Some reading meterial.
Investment Research International, Inc.
"Providing research for the imtelligent investor."
1888 Century Park East, 1~h Floor, Los Angeles, CA 90067 (310) 2~3231 Fai (310) 284~3262
COMPANY REPORT
February 3, 1997
Recommendation: STRONG BUY at current levels and accumulate tbrough $8.00. One year target price $12.50
Newriders
OTC - BB Symbol
Price Range (180 Day High Low)
50 Day Moving Average
Shares Outstanding
Market Value
NW~fl
$6.00 -$1.00
$1.50
15,681,000
$39,202,500
Sector
Current Price
100 Day Moving Average
Free Trading Shares
30 Day Trading Volume Ave.
~~heme Restaurant & Entertainment
$2.50
$2.00
1,080,000
3,823
The Company
Newriders Limited a subsidiary of Newriders, Inc. is an operator of an Easyriders Franchise that includes the
Easyriders Cafe Restaurants, Roadware Apparel/Merchandise Stores and Easyriders Motorcycle Shops. The
Company continues to develop and expand its theme restaurant operations by capitalizing on the universal
appeal of the American-made motorcycles and the Easyriders Maga:ine lifestyle.
"Competitors such as Rainforest and Easyriders Cafe Restaurant aim to lure the repeat local business
that eludes Planet Hollywood." - The Wall Street Journal, October 2, 1996
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The Company has no long-term debt.
Unit economics are very attractive. Sized between 10,000 and 20,000 square feet, the average unit i~ estimated to generate approximately $600 per square foot, equivalent to $6 to $12 million per unit pei annum.
Our one year target price is $12.50 or 30 time our 1998 EPS estimate, however, if the Company i~ successful in raising additional financing for more units than originally projected then the earnings anc target price could exceed these estimates.
Growth plans are aggressive for the next two years. The Company plans to expand to an additional 7 ne~ units. All units will be located in highly trafficked consumer and tourist areas such as Celebrity Square ai Broadway at the Beach, Myrtle Beach, South Carolina which is expected to open April 1997.
Compare Newriders to Rainforest. With one restaurant and a second under development, Rainforest stoc~ soared from $3.50 to $35.00 per share. So as Newriders completes its financing and construction of its nexi unit, can we expect the same intense enthusiasm in the stock. We believe this is very likely.
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Easyriders Concept
Newriders Limited, a 100% wholly-owned subsidiary of Newriders, Inc., was formed in November of 1994 to take advantage of a business opportunity that has been created by the burgeoning interest in the American made motorcycle and its recreational use. The fascination of the "Biker" lifestyle has resulted in a large market for American made motorcycles. American made motorcycles are in continuous high demand. This demand has increased the demand in the afier-market for pans, service, and custom fabrication. Similarly, the demand for suitable and fashionable clothing for the "bike" rider has increased along with suitable gathering places and "biker" events. Through the Ea~syriders Franchise the Company has taken the "Biker" fascination and lifestyle to the next level by creating and combining a theme restaurant, apparel and merchandise store, and a motorcycle and accessories shop, as a unit, with plans for national and international expansion.
In addition to becoming a social center for people involved with the motorcycle lifestyle, the units are designed to attract the general population with an appearance that is to bikers what the Hard Rock Cafe is to rock enthusiasts. Filled with motorcycle memorabilia, American made and custom motorcycles, and biker theme, the units is a gathering place for locals as well as a destination point for travelers. The Company plans to continue to develop the theme that has now reached mainstream society.
The Restaurant
The Company's theme restaurant, Easyriders Cafe provides a unique dining and entertainment experience in a high~nergy environment, that capitalizes on the universal appeal of the American made motorcycles and the Easyriders Magazine lifestyle. The units provide an attractive value to customers by offering a moderately priced, full menu of high-quality food and beverage items served in generous portions in a distincuve environment. The units will generally range in size from approximately 10,000 to 20,000 square feet and in seating capacity from 140 to 400 persons with ongoing atmosphere of excitement created by combining unique layouts and decor with motorcycle and Easyriders memorabilia, and live entertainment consisting of Blues, Old Rock and other popular music. The Company is keying on repeat business from the local communities and the tourist. Management believes that customers will return for excellent quality of the food; service, atmosphere and entertainment.
1
(I) A 1998 Run Rate, assuming all units are fully operational by January 1, 1998 and no additional units from those described above are opened during 1998, and the current units in Fresno, CA and Sturgis, SD included, would equate to $56,300,000 in sales. Through discussions with Company management, management believes the Company can bring the bottom line to 20 percent. Much of this is based on the high profit apparel and merchandise sales combined with restaurant operations. In order to account for extraneous, start-up cost per unit, and unexpected slow-downs in business, we have discounted the bottom line to a more conservative figure of 15 percent or a profit of $8,445,000 off $56,300,000 in sales.
Potential for Faster Unit Expansion
With the experienced management team and cash to support additional expansion, we believe the opportunity exist to exceed the above schedule. The Company is currently in negotiation for the funding of addition units. Of the currently committed sites, Myrtle Beach, SC seems to be the best possible expansion location. We find confidence in the fact that management has delivered this site, as each new location is of significant importance at this early stage of development. We believe that sites under construction are very strong and will deliver the needed foot traffic and that the 1997 and 1998 locations represent fruitful long-term locations as well as good test markets. All of this could offer upside potential to our estimates and will be monitored as they further develop.
Locadon, Location, Location
The Company selects its unit locations based on their proximity to popular attractions or areas in major tourist markets. The Company expects to open units following a similar pattern to the Hard Rock Cafe and Planet Hollywood with site analysis to include local and tourist foot traffic. The Company is talking with landlords regarding leases in well-trafficked consumer and tourist areas Internationally while management believes there are in excess of 60 sites in the United Sates that can support an operation the sizes similar to the units noted above in Unit Economics & Model Assumptions (Figure 1).
P & L Forecasts for Unit Economics (Figure 2)
Fiscal Dec.31 1997E 1998E 1999E 2000E
otalRevenues(Millions)
otalNetlncome(Millions)
arnings Per Share (1)
ear-End Projected Target Price (2) $13.8
$1776
$0.09
$12.50 $56.3
$8445
$0.42
$23.00 $101.8
$15270
$0.76
$35.00 $158.1
$23715
$1.19
$60.00
(1) Based on 20,000,000 shares outstanding.
(2) Our 12 month target price is $12.50 per share or 30 time our 1998 estimated earnings. Although this target price may seem lofly to some, in our comparative analysis and similar company valuations, we believe these figures are justified and representative of the industry. (See Figure 3 - Comparables and Valuation)
The Company has a seasoned and aggressive management team that has combined its entrepreneurial spirit with the Easyriders lifestyle and created the next level of the theme entertainment concept with the Easyriders Cafes. We believe that management's ability to deliver a pleasurable dining experience is not an issue, therefore, getting the attention of a prospective customer and getting them in the door is a primary concern. Unit management for such an operation is always an issue, but we believe that because of the size of the operation and the excitement over "theme" restaurants and merchandise, operational management should be fairly easy to find - choosing the best among the candidates may be the primary concern. Key principal and management includes the following;
Mr. Michael 1: Purcell (57). President, Chief Executive Officer and Director of the Company. Mr. Purcell is the co-founder of Newriders Limited and has acted in several executive positions since inception in November 1994. He has served as President and Chief Executive Officer of Purcell, Appling Associates, an advertising agency and marketing consulting firm, since 1987. Mr. Purcell has served as Director of Sales Development for NBC Radio in New York City and Partner in the Transtar Radio Network from 1981 to 1985. He has served as the Producer and Promoter of American motorcycle oriented events such as the Harley Challenge and Valley Thunder Biker Bash & Blues Festival in Central California since 1992. Mr. Purcell has also served as Coordinator and Director of the Chili Cook-off held in Central California since 1984.
Mr. Leon Hatcher (46). Chairman of the Board of Directors. Mr. Hatcher is the co-founder of Newriders Limited and formerly served as President and Chief Executive Officer. Mr. Hatcher has also served in similar capacity for Easyriders Rodeos, Custom Bike, Tattoo Show, and Easyriders Retail Apparel Outlets.
Mr. Rick L Pierce (35). Secretary and Director. Mr. Pierce is the co-founder of Newriders Limited and has served as Vice President and Director since inception. He has served as President and Chief Executive Officer of Pierce Financial, Inc. since January 1995; as President and Chief Executive Officer of Pierce Development since October 1994; as Managing General Partner of Bullard Temperance Investors and Pierce Realty Investors 92.2 since 1992; and as President and Founder of Pierce Financial and Insurance Services since 1984.
Mr. C. W. Doyle (62). Vice President and Director. Mr. Doyle is a retired attorney and airline pilot. Mr. Doyle served as a Trainer in the TWA Flight School Operations and Captained on international routes. He has a law degree from Seton Hall University and is a member of the New York and New Jersey Mars. Mr. Doyle was associated with the Roy Cohen Law Firm in New York City.
Recent Results
The Company, which brings the theme restaurant concept to a new and higher level, is well positioned to benefit from the rapid expansion in this exciting industry.
The following is a summary of recent developments:
ú January 21, 1997. The Company announced that they have entered into a $1 million advertising agreement with Associated Barter Services, Inc. (dba ABS Worldwide, Inc.) of California. The agreement will allow Newriders with $1 million in pre-paid advertising over the next three years or until such time as the advertising has been used. ABS will provide advertising in the form of radio and television time, newspaper and magazine space, and outdoor signs.
ú October 31, 1996. The Company announced the signing of a Letter Of Intent to lease space at Celebrity Square at Broadway At The Beach, Myrtle Beach, South Carolina. A grand opening has been scheduled for April 1997. Broadway At The Beach is also home to the Hard Rock Cafe, Planet Hollywood, Nascar Cafe, Gilly's, Landrey's, and the Palace Theater. This will be Newriders third unit in the last 12 months and the first in the Southeast.
ú October 2, 1996. The Wall Street Journal, Heard On The Street, "P I E Reaches Stars at Planet Hollywood". The writer points out that Easyriders Cafe caters to the tourist as well as the local repeat business:
"Competitors such as Rainforest and Easyriders Cafe Restaurant aim to lure the repeat local business that eludes Planet Hollywood." - The Wall Street Journal, October 2, 1996
ú August 24, 1996. Chester McGlockton, a Pro Bowl Defensive Tackle for the Oakland Raiders, and a shareholder of Newriders, makes an appearance at the Fresno, California restaurant to sign autographs and raffle Raiders tickets.
ú August 1996. Easyriders Cafe makes front cover and industry profile feature story in Nightclub & Bar Magazine, the industry's leading trade magazine. The author writes:
"Today all roads lead to Easyriders Cafe in Fresno, Calif., the first of a planned chain of restaurants/nightclubs targeting the biker subculture. A far cry from the biker bars of yesteryear, Easyriders is sleek, shiny, immaculate and sexy as hell - a sort of gigantic Harley-Davidson without the wheels and engine but with every bit of the "born to be wild" attitude."
ú August 1, 1996. The Company opened an Easyriders Cafe unit in Sturgis, South Dakota. The unit is a seasonal operation. Each year in August hundreds of thousands of motorcycle riders make the pilgrimage to the town of Sturgis, SD, for the Black Hills Rally. While the location is, expected to be the smallest in the chain, it is important to the Company's image to be part of the greatest motorcycle event in the world.
Comparables and Valuation (Figure 3)
ompany icker 1I21~97
Price High Low Earnings
. PIE 30 Day Trading
Ave.
lanetHollywood heesecake Factory aveandBusters,Inc.
andrysSeafoodRest.
gans Roadhouse pplebees International ne Star Steakhouse utback Steakhouse tarbucks Corporation ainforest Cafe, Inc. HH
AKE
ANB
DRY HS PB
TAR
SSI
BUX 19.0625
19.8750
19.8750
23.2500
23.1875
29.6250
27.3750
24.7500
32.1250
24.5000 32.12
28.75
28.87
28.37
28.00
34.25
45.00
40.75
40.25
36.25 18.00
17.12
11.87
14.00
11.12
17.75
24.62
21.37
14.50
14.87 0.36
0.66
0.79
0.02
0.64
0.00
1.49
1.33
0.54
0.00 53
30
25
'1163
36
0
18
19
59
~0 179,000
79,000
92,000
165,000
30,000
138,000
754,000
437,000
1,105,000
440,000
vera~es 24.3625 34.26 16.52 0.58 42 341,900
Newriders, Inc. NL~~RD 2.5000 6.00 1.00 0.00 0
- 3,823
*Not
il
'icluded in
I
)/E averages.
ú The Company has No Longer-Term Debt.
ú The Company is taking the theme restaurant business to a new and higher level, where the competition is limited.
ú The Company has only been public since June 1996 and is virtually unkiiown at this time. Once awareness is brought to the investment community the shares of common stock can be expected to trade higher.
ú The Company anticipates to open a unit in Myrtle Beach, South Carolina by Spring 1997 and six more by Winter 1998.
ú The Company anticipates to file for a NASDAQ listing during the second quarter of 1997. A NASDAQ listing will bring greater stock participation within the financial community, leading to greater demand for the stock.
ú The Company's share price is undervalued compared to other theme restaurant organizations such as Planet Hollywood and Rainforest Cafes.
Again, we believe the stock trading at $2.50 per share is considerably undervalued and is a strong buy. We believe investors should accumulate through $8 per share. Our 12 month target price is $12.50.
Selected Audited Financial Data (August31, 1996)
ASSETS
(
(
urent Assets 655,541
~o~ty and Eqinpment 1,263,025
)Lher Assets 271,3% TOTAL ASSETS 52189.%2
LIABILITIES AND STOCKHOLERS' EQUITY
URRENT LIABILIThS
iTOCICHOLDERS' EQUITY Cc,(~~on stock; 25,000,000 shares autk~sl of$O.001 par value, 15,726,000 shares issued and outstanding Additiona! paid-in capital Aocumulated deficit
Total Stockholders' Equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
Report prepared by:
Charles V. Mugrdechian
(310)284-3231 Fax (310) 284-3262
E-Mail Address - iri~.crl.com
1S9,327
15,726
2,356,876
(371%,:,1
2000.635 S2189%2
Investment R~mrcli lntcrnatioaal, Inc. and or its affi~iates may or may n~~t have a long or shwi position in the securities rmtioned ~e'Ffl may or niay~~have ~cnvc~i
I ~ from the issue' of secitrities mentioned I~~n takes information from sources believed to be but are no' guaranteed to be reliable, and suggest that ~~sa'sI
miew any rcISu,d p'rrchase or sale decisions with their financial advisor prior to the completion of a purchase or sale decision and after review of the iss'eers moat recent I
financial atatetnents. This analysis does no' purport to he a complete study of the securities mentioned herein. I |
