Stock of the Day – Collins Food (CKF)

Current CEO Kevin Perkins has decided to step down after 35 years with CKF and will remain as an executive director. Current CFO/COO Graham Maxwell has been appointed to take over as CEO from September14 after joining in March 13. The change is not a surprise given the contributions Mr. Maxwell has made since joining. We do not expect any immediate changes to CKF’s existing strategy.

  
CKF's Australian Restaurants (Source – Company Reports)
 
With management reshuffle nearly complete in the next 1-2 years we see increasing probability of more resolute decisions around Sizzler and /or more aggressive pursuit of KFC store growth outside of QLD. Of particular note is the Copulos Group’s growing investment in CKF. Copulos group is also the largest NSW KFC franchisee and largest independent KFC franchisee in Australia with more than 50 outlets. Copulos group currently holds 1 out of 5 seats on the CKF board.


CKF NPAT (Source – Company Reports)

Sizzler’s under performance and uncertain future in Australia is a key drag on CKF share price performance in our view. CKF’s corporate overheads is close to $10m  and designed to support more than 2 brands of which only KFC is materially profitable at present. Stripping out Sizzler and capitalizing only KFC’s earnings with a much smaller corporate overhead cost base would unlock significant shareholder value in the medium term in our view.


CKF Daily Chart (Source – Thomson Reuters)
Collins Food generated revenues of $440.6 million for the financial period ended 27 April 2014 (FY14), up 3.9% on the prior corresponding financial period (FY13). This growth was largely driven by strong sales growth from the group’s network of KFC’s restaurants. The group generated Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) of $50.5 million in FY14. This was up 7.0% on the prior year as a result of direct and indirect labour efficiencies and productivity initiatives. Net Profit After Tax was $14 million down 14.3% on FY13 due to the impact of acquisitions and other significant items. We believe the stock is expensive and would review the stock at a later date.

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