Bite Taken out of Brazilian Burgers

By Travis Johnson, Stock Gumshoe, October 16, 2012

Those of you who’ve been following the Gumshoe religiously might have noted that I’ve been conflicted about Brazil Fast Food (BOBS) lately — I’ve been considering selling my position and moving that into a larger and more diversified stock that plays on similar trends like Arcos Dorados (ARCO) or possibly Burger King (BKW) … and I’ve held off largely because ARCO and BKW are both a bit pricey lately.

Well, in retrospect I wish I had given in to those feelings — BOBS just got clobbered.

Why? Well, you can largely chalk it up to Sarbanes-Oxley — they decided that as a small company (market cap around $50 million) that has no US business, it was becoming too onerous to file in the US. So they are deregistering with the SEC (they’ll still release similar numbers each quarter, though their accountants will use Brazilian GAAP instead of US GAAP), an act that they expect to save them $300,000 a year and also allow their management team to focus more of their effort on operations.

They are not going to be “delisted” — they already trade over the counter on the OTC Bulletin Board, and that won’t change, unlike the NYSE or the Nasdaq, they don’t have to be SEC-compliant to trade over the counter. The numbers will look different, but they are generally a lousy company at communicating regularly with shareholders anyway (beyond quarterly filings), so I don’t think much will materially change. There is possible risk that they’re doing this to cover up accounting shenanigans or active problems that we don’t know about but that might be revealed in SEC filings, but I don’t know what the risk level is and I haven’t been particularly concerned about the numbers they’ve released to this point (that is, they’ve seemed feasible given the size and type of business — I’ve never been to Brazil to do channel checks or investigations or anything like that).

So the company is not going to change markedly due to this move. It might make it more likely that I’ll sell my shares in the near future if the stock recovers to a reasonable valuation, but after falling 20% in a panic response to the deregistration (which looks like it will take effect, more or less, with the first release of the new year), I don’t particularly wish to sell at what seems to ...

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