Collins Foods Limited

CKF Details

Consistent Growth in FY19: Collins Foods Limited (ASX: CKF) is primarily engaged in operation, management and administration of restaurants in Australia, Europe and Asia. The company recently announced the results for the financial year ended 28 April 2019, which witnessed strong growth in earnings.

Key Financial Highlights of FY19: Total revenue for the company reported an increase of 16.9% to $901.2 million in FY19, owing to the growth in like-for-like sales and new restaurant openings. The higher top-line accompanied by strong business controls led to a further rise in EBITDA by 25.2% (yoy) at $112.2 million. NPAT for the period stood at $45 million, up 15.7% on FY18 NPAT of $38.9 million. Net operating cash flow during the period amounted to $97.5 million, up 30.9% (yoy). Bottom line was impacted by significant items of $5.9 million in the period.


Summary of FY19 Earnings (Source: Company Reports)

Segment Performance: Coming to the segment performance, KFC Australia reported a growth of 3.7% in same store sales as compared to a growth of 1.4% in the prior corresponding period.The segment reported an underlying EBITDA growth of 20.9% at $120 million. Growth was underpinned by initiatives relating to the delivery, digital and operations. Under this segment, 7 new restaurants were built and opened during FY19.
Performance in KFC Europe was marked by lower than expected sales from new products and lesser value offer as compared to the previous year. The segment’s same store sales reported a decline of 3.7% due to the weaker trading conditions, cost of new openings, and underperformance of some new restaurants.

Taco Bell reported continued progress in growth with the opening of four stores in Queensland and strong positive customer engagement. The company has further planned to open 10 restaurants in the segment by the end of the year along with planned entry into Victoria in early 2020.

Same store sales for Sizzler Australia grew at a rate of 4.4% in FY19 in comparison to a decline of 0.5% in FY18.The period saw the closing of 2 restaurants in the segment which brought down the number of stores to 12. Sizzler Asia continued to witness growth in both existing and new restaurants with royalty revenue going up by 12.2%.

Stock Recommendation: The stock of the company generated returns of 40.73% over a period of one year. The stock is trading at PE multiple of 21.64x, which is higher than the industry multiple of 16.6x. Looking at the performance in the financial year 2019, the company reported consistent growth in terms of financials including revenue, EBITDA, and NPAT. The period was characterised by strong growth in KFC Australia along with continued progress in the Taco Bell segment. Despite the excellent earnings posted for FY19, we are of the view that most of the positives are factored in the current market price. The stock is currently trading at stretched valuations and the possibility of correction might trigger in the near term. Based on foregoing and looking at current trading levels, we give an “Expensive” recommendation at the current market price of $7.720, up 0.652% on 25 June 2019 (we gave a “Sell” at a relatively higher price). Investors might want to wait for some more correction.


CKF Daily Chart (Source: Thomson Reuters)
 

Sandfire Resources NL

SFR Details
 
Consistent Decline in Copper Production: Sandfire Resource NL (ASX: SFR) is primarily engaged in production and sale of copper, gold and silver from the group’s DeGrussa Copper-Gold Mine in Western Australia, development of Sandfire Resources America Inc’s high-grade Black Butte Copper Project and exploration, evaluation and development of mineral tenements and projects in Australia and overseas.

The company recently announced that it is planning to acquire MOD Resources Limited, a mining company whose flagship asset is T3 project in Botswana. The acquisition involves a Scheme of Arrangement with a consideration of A$0.45 per MOD share totalling to A$167 million. The company will be funding the consideration and transaction costs associated with the acquisition through internal sources. The acquisition of MOD will add the EMEA region to the company’s global portfolio.

Highlights of Quarter Ending March 2019: During the period, the company produced 16,062 tonnes of copper against the production of 16,888 tonnes in the quarter ending December 2018 and 17,924 tonnes in the quarter ending September 2018. Gold production for the quarter was reported at 10,921 tonnes against 10,427 tonnes in the December quarter and 11,141 tonnes in the September quarter.Mine production for the quarter totalled to 434,518 tonnes. For the current period, a total of 413,688 tonnes of ore grading 4.21% Cu was milled, with the average copper recovery of 92%. C1 cash operating costs for the period stood at US$0.92/lb, reporting a rise in comparison to costs of US$0.85/lb in December quarter.

Production and Cost Highlights (Source: Company Reports)

FY19 Guidance: The company expects the copper production for the financial year 2019 to be in the range of 66,000 and 68,000 tonnes of contained copper metal. The gold production guidance is in the range of 40,000 to 42,000 ounces of contained gold. In addition, the company reduced the guidance for C1 cash operating costs to ~US$0.90/lb.

Stock Recommendation: The stock of the company generated negative returns of 26.12% over a period of one year. The company’s EBITDA margin for H1FY19 was 72.5%, which is lower than the EBITDA margin of 76.3% in H1FY18. The net margin for H1FY19 was 41.8%, which is lower than the net margin of 43.7% in H1FY18. In H1FY19, the company also witnessed a decline in revenue and net profit as compared to the prior corresponding period. For the quarter ending March 2019, the company reported a decline in copper production on QoQ basis starting from the quarter ending September 2018. By looking at its performance in quarter ending March 2019 and current trading level, the stock can be avoided at the current market price of $6.280 (down 11.174% on 25 June 2019).


SFR Daily Chart (Source: Thomson Reuters) 

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