Buying Wendy's

03/23/06 12:28:15 PM

by Koos van der Merwe

Were you lucky enough to be in with the Tim Horton's IPO?

Security: WEN
Position: Hold

Founded in 1964, Tim Horton's was a Canadian company that in 1992 started to cooperate in a partnership with the US-based Wendy's hamburger chain, eventually leading to a merger in 1995. Now it's going out on its own.

Wendy's International Inc. paid $580 million for the Tim Horton's franchise in 1995. Since then, the Tim Horton's chain has grown to one of the more successful franchises in Canadian business history. The monthly chart (Figure 1) does not show any significant move with this purchase, but as with all companies, the popping of the 2000 bubble caused its share price to halve, from $32.57 to $14.58, but those believers who held their shares watched the share price recover within two years.

The Tim Horton's initial public offering, which is due out on Friday, March 24, is attracting a great deal of attention. Brokerage houses have been inundated with calls from people desperate to get in on the IPO, ranging from $25 to $27 a share. Why, you may ask? Is it because their doughnuts really are the best?

Many investors believe that with Tim's going its own way, shares in Wendy's may fall drastically. What do the charts tell us?

Figure 1, a monthly chart of Wendy's, shows how the stock rose steadily from $3.71 in March 30,1990, to its present $66.30.

FIGURE 1: WENDY'S MONTHLY. The Wendy's stock rose steadily from $3.71 in 1990 to its current $66.30.

Graphic provided by: AdvancedGET.

June 2002 saw another fall from $42.32 to $24.03, a tumble that was probably the start of talks to split the company. Key Wendy's shareholders may have had difficulty with a volatile share market. In any case, the move would relieve Wendy's International of 17% of its shares, down to 83%. The sale of 33 million shares by the end of the year would mean Wendy's would benefit from the move financially. Wendy's also plans to distribute its remaining stake in Tim's to its shareholders before year-end. This led to incredible growth, with the share price topping at $66.30, in what appears to be a wave 3, with a wave 4 in the wings.

A daily chart (Figure 2), on the other hand, suggests that a wave 5 could be in the process of finalizing itself, although there are two possible alternatives at $70.01 and $78.79, respectively. The falling stochastic indicator suggests this as a real possibility, although falling volume as price fell does suggest otherwise.

FIGURE 2: WEN, DAILY. Is Wendy's a buy in light of the Tim Horton's spinoff? Maybe ... and maybe not. Wait and see.

Graphic provided by: AdvancedGET.

Is Wendy's a buy at this level, especially in light of the Tim Horton's spinoff? Very possible. Many investors who will be left out of the IPO will probably make a play for Wendy's shares. Based on the charts, I would say wait and watch. Remember, only fools rush in.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address:	3256 West 24th Ave
	Vancouver, BC
Phone # for sales:	6042634214
E-mail address:	petroosp@gmail.com

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Buying Wendy's

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