Costa Group Holdings Limited

Changing Year End from FY to Calendar Year: Costa Group Holdings Limited (ASX: CGC) is changing its financial year (FY) end to the calendar year (CY) reporting because of ever increasing proportion of the company’s earnings occurring in the first half of the calendar year. The revenue of the company stood at $478 million, down by 2.4% on the prior corresponding period. The EBITDA before SGARA and material items and amortisation stood at $35.3 million, decrease by 42% compared to the prior period. However, the group had strong free cash flow outcome, with 106% cash conversion.

The profit numbers were less than expected during the six-month financial period to December 2018. However, the company remains on target to meet the medium to long term profit growth objectives.


Results comparison for six months to December 2018 (Source: Company Reports)

Expectations Going Forward: The outlook for market, crop performance and weather conditions are generally positive, and the company expects CY2019 NPAT-SL growth of at least 30%, with a further update to be provided at the AGM at the end of May.  The earnings for the six-month period to December were expected to be considerably lower than the prior year because of factors relating to consolidation of African Blue as a result of majority ownership, the citrus crop biennial cycle and seasonality of production occurring in the January-June period.

On the price performance front, the stock has yielded a 4.54% return over the past three months. With the stock trading closer to its 52-week low level of $ 4.40. By looking at the current trading level and decent fundamentals on the back of good balance sheet and cash flow, we maintain our “Hold” recommendation on the stock at the current market price of $5.070 per share (up 0.795% on 12 April 2019).
 

Collins Food Limited

Robust Fundamentals: Collins Food Limited (ASX: CKF) is in the business of operating food service retail outlets. The company is operating several KFC outlets throughout Australia and having KFC outlets in Germany and the Netherlands as well.

Key Financial Metrics 1HFY19 (Source: Company Reports)

The revenue of the company grew by 27.6% to $411.0 million in 1HFY19 as compared to $322.1 million in the prior corresponding period on the back of strong same store sales growth in KFC Australia and successful acquisitions.The Statutory NPAT of the company grew by 69.3% to $21.5 million in 1HFY19 as compared to $12.7 million in 1HFY18. The company showed decent margin growth with improved profitability ratios (ROE 6.4%, an increase by 30 bps as compared to 2H FY 2018).

Future Strategies: The company is focused towards operations, delivery and digital when it comes to KFC Australia. It is expecting to build and open a total of 8 KFC restaurants in Australia by the end of the financial year. Additionally, it is looking to significantly expand the size of the home delivery footprint moving forward using multiple aggregators.

Meanwhile, the stock delivered a YTD return of 18.47% and, over the last three months, the return was 19.13%, showing decent returns over the said period.Moreover, the stock is currently trading slightly toward its 52-week higher level of $7.390. Hence considering the healthy balance sheet, strong operating cash flow, strong growth delivered across key financial metrics and current trading level, we maintain our “Hold” recommendation on the stock at CMP of $7.160 per share (up 0.562% on 12 April 2019).  
 

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