Can Collins Foods Deliver?

This story features COLLINS FOODS LIMITED. For more info SHARE ANALYSIS: CKF

By Michael Gable 

Collins Foods ((CKF)) operates more than 250 restaurants and food service retail outlets. The Company is a KFC franchisee in Australia and Europe (Netherlands and Germany), a Taco Bell franchisee in Australia, the owner of Sizzler restaurants in Australia and a Sizzler franchisor in Asia. CKF is the largest KFC franchisee in Australia, with 228 stores. Both the KFC and Taco Bell brands are owned globally by Yum! Brands. CKF’s franchises are held through individual agreements with Yum! Brands and CKF are required to pay Yum! Brands annual loyalty payments.

We consider the recent weakness in the share price places CKF in value territory, with the shares now trading on a 1-year forward P/E multiple of 14.6x, which is not demanding in the context of the defensive revenue profile and potential earnings uplift over the long-term from expansion in KFC Europe and Taco Bell.

Notwithstanding the challenging short-term performance of the KFC Europe division, the long-term growth opportunity in Europe remains significant in light of an expanding store footprint, SSS growth and margin improvement. For KFC Australia, the Company has the ability to maintain EBITDA margin over FY19/20 and support SSS growth on the back of the digital menu/delivery strategy.

CHART VIEW – COLLINS FOODS
From early 2017 to mid-2018, CKF traded in a symmetrical triangle before breaking out near $5.70. It rushed up to well over $7.00 but has been coming back the last several weeks. It looks a bit weak in the short term. It is finding support near $6.00, and if that can't hold, then we also have support back near the breakout zone of $5.70. The longer-term picture still looks positive, but we just need more evidence of support coming in in the short term.

 

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Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services. 

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
 

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