Thanks for taking a look at the BurgerFuel IPO and publishing your analysis for your clients, readers and the general web community to consider. We’ve taken a look at your high-level analysis with a lot of interest and appreciate that our decision to not post projections and other prospective information has no doubt made this a lot more difficult for the team at Valuecruncher.

However, we would like you to consider a few things that have been overlooked in your valuation.

Your calculation only takes into account ongoing franchise revenue over the system. There are a number of other income streams that are not included in the Valuecruncher analysis, for example, Burger Fuel Worldwide Limited (BFW) also receives upfront franchise fees for each store that it sells - $65,000 (refer page 54 of the prospectus for more info) – you will see that on the 700 stores Valuecruncher refers to, that BFW would receive additional income of $45.5 million in upfront franchise fees.

This needs to be spread as income over the years Valuecruncher has assessed BFW will take to build these stores (you’ve said 5 years). This adds a further $9.1M per annum in revenue (if we keep it simple and just divide by 5).

Based on your 5 year projection, in year 5 the company would have revenue of $70million, but you have to add the upfront fees of $9.1 million (received in that year) to give $79.1 million, from there you obviously still have to assess the company overheads as we are not providing prospective financials. However, it is important to keep in mind that the NZ HQ and infrastructure is already well established and that BurgerFuel has been supporting an Australian HQ and infrastructure in preparation for expansion.

In addition, Valuecruncher has made no allowance for any potential growth in the per store average turnover. If you look at our average over the last 3 years (refer page 53 of the prospectus) you will see that as well as increasing store numbers our per store average (PSA) is also increasing. As the brand gets bigger its logical to assume that store turnovers may continue to rise (growth is also supported by ever increasing marketing budgets). This store growth also needs to be factored into any value equation.

Per store turnover reported in the prospectus to 31 March 07 was $20,727 per week or $1,077,804 per annum. For example if the PSA average grows at 8% per annum (we are not saying it will –but inflation alone will account for part of this) that would put the yearly per store turnover in 5 years at $1,583,647. If the ongoing franchise fees remain the same as the current – 10% (and they could also increase over that 5 year period) the ongoing franchise revenue alone would be around $110 million (instead of the $70 million in your valuation). This does not include the up-front fees mentioned above, which we calculated above to be at $9.1 million per annum, which would make it $119.1 million instead of your assessment of $70 million.

In fact, you will find that the figures are closer to the $76.6 million referred to in your model, at half the stores you have eluded to – 350 stores providing $22.75 million in up-front fees over 5 years (average of $4.55 million per year) along with ongoing revenues of over $55 million per year (350 stores at $1,583,647 x 10%). Under this model the revenue in the 5th year would be around $60 million with just 350 stores.
For the record, we are only responding to your scenarios and analysis to ensure that you have the correct understanding of our business model. However, you should note that our responses do not constitute prospective or forecast financial information.

We hope this helps you guys in any further valuations, assessments or discussions you may be undertaking with clients or others. If you have any other questions or would like any other items clarified please feel free to call or email us.

Thanks again for ‘Valuecrunching’ the BurgerFuel IPO,

The Team at BurgerFuel

http://www.burgerfuel.com/shares