Collins Foods Limited

Strong Revenue Growth in HY20: Collins Foods Limited (ASX: CKF) is a restaurant holding company, operating premier brands in Australia, Netherlands, and Germany. For the half-year ending 13 October 2019, CKF reported revenue from ordinary activities of $448.78 million, up 9% on the previous corresponding period. KFC Australia business reported strong same store sales (SSS) growth of 4.9% for the period with all states showing positive SSS growth. The positive leverage from SSS growth and strong cost control from improved network systemisation drove underlying EBITDA margin of KFC Australia to increase by 17.5% on pcp. The company’s statutory EBITDA increased by 9.7% to $58.8 million in HY20 as compared to pcp. At the end of the period, the company’s net operating cash flow decreased by $2.1 million on prior half-year to $33.7 million. The company declared a fully franked interim dividend of 9.5 cents, up 5.6% on pcp, reflecting the healthy operating cash flows of the business and its growth outlook.


HY20 Results Summary (Source: Company Reports)

Outlook: In the second half of FY20, CKF intends to further expand the delivery channel across its KFC restaurants where possible. For the remainder of FY20, CKF plans to build 4 new restaurants, bringing its net new restaurant count to 9 by the end of FY20.  In Europe, the company expects to have 4 to 5 new restaurant builds in FY20, with a further 4 to 6 in the subsequent year. In 2020, the company is targeting to build 20 new Taco Bell restaurant. In Netherlands, the company expects that its renewed focus on value and targeted marketing campaigns will improve trading in the second half of FY20.

Stock Recommendation: On the valuation front, the stock has a price to earnings multiple of 28.950x, which is higher than the Consumer Cyclicals industry median of 12.6x, suggesting an overvalued position. Further, the company has an EV/EBITDA ratio of 11%, higher than the Consumer Cyclicals industry median of 7.7%. On a year to date basis, the stock has provided a return of 61.73%. At the current market price of $10.360, CKF is trading very near to its 52-week high of $10.800. Considering the stretched valuation and higher trading levels, we give an “Expensive” rating on the stock at the current market price of $10.360, up by 6.564% on 27 November 2019 on account of HY20 results.
 

Domino's Pizza Enterprises Limited

Shareholding Changes by Directors: Domino's Pizza Enterprises Limited (ASX: DMP) is Domino’s largest franchisee outside the United States of America, with a network of over 2,500 stores operating in Australia, New Zealand, Belgium, France and several other countries.  DMP’s Managing Director, Mr Don Meij, recently exercised 300,000 share options in the company at an exercise price of $40.95 per share and later sold an equal number of shares at a price of $51.25 per share. Following this, Mr Meij’s total shareholding remains unchanged with 1,263,062 shares directly in his own name and 536,939 shares indirectly through Invia Custodian Pty Ltd as trustee for the Meij Family Trust. Recently, the company’s Director, Uschi Schreiber, acquired 1,000 fully paid ordinary shares of the company via on-market trade at a price of $52.5155 per share.

Strong Network Sales Growth: At the AGM held on 28 October 2019, the company informed that in the first 17 weeks of FY20 (year ended 30 June 2020), the company’s Network Sales grew by 10.6% on the prior year. On a Same Store basis, it grew by 4.1%. Over the period, the company opened 42 new stores. DMP has passed 300 Domino’s branded stores in Germany and has over 1000 Domino’s branded stores in its European business. In FY19, the company’s Network sales were $2,897 million, up by 11.9% on the previous year. The company’s online sales during the year increased by 18.2%.

Outlook: Over the period of 3-5 years, the company intends to open new stores at the rate of 7%-9% of Group network annually and grow Group Same Store Sales at the rate of 3%-6%. By 2025-2030, the company expects to have around 5,050 stores, which include 2,850 stores in Europe, 1,200 stores in ANZ and 1,000 stores in Japan.
 

Guidance Assessment (Source: Company Reports)

Recommendation: DMP has an EV/EBITDA ratio of 17%, significantly higher than the consumer cyclical industry median of 7.7%. Further, the stock of DMP has a price to earnings multiple of 39.080x, higher than the industry median of 7.7x, suggesting the overvalued position at the current juncture. On the stock price front, in the last six months, DMP’s stock price has increased by 30.10%. At the current market price of $53.200, the stock is trading near to its 52-week high of $53.630. In light of the current valuation and higher trading levels, we recommend an “Expensive” rating on the stock at the current market price of $53.200, up by 0.4725% on 27 November 2019.

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