Stocks’ Details
 

Collins Foods Limited

 
COVID-19 Update: Collins Foods Limited (ASX: CKF) is mainly involved in operation, management, and administration of restaurants in Australia, Europe, and Asia. The market capitalisation of the company stood at $927.99 Mn as on 28 May 2020. The company recently provided an update relating to the COVID-19 led global impact on its business. The company has taken necessary measures to ensure the well-being of its employees and customers as well as implementing cost control measures and ensuring continuity of the business. TheKFC Australia business has shown improvements in sales amid COVID-19 led crisis. Over the last five weeks of FY20, same store sales (SSS) were down slightly by 0.9% year over year. However, the KFC Food Courts have been severely affected due to the substantial decline in shopping mall foot-traffic. Notably, excluding the net effect of Food Courts, same store sales for the remainder of the network went up more than 4% year over year. Increased drive-thru and home delivery sales were key positives in these difficult times. The company had a positive come back in the Taco Bell business over the last few weeks of FY20, after suffering an initial decline in sales, due to COVID-19 crisis. The company opines that it is well positioned to stay afloat through this difficult time.
 
1HFY20 Key Highlights: On the financial front, the company experienced a growth of 9.2% in revenue, which amounted to $448.8 million in 1HFY20. It experienced a decline in net debt to $217.3 million in 1H FY20 as compared to $226.2 million reported at the end of 1H FY19. Underlying EBITDA for the period went up 7.4% to $57.7 million. The decent financial performance of the company resulted in the EPS to increase to 20.5 cps from 18.8 cps in pcp. The company declared a 100% franked interim dividend of 9.5 cents per ordinary share, demonstrating the healthy operating cash flows of the business and its growth outlook.
 

Key Highlights (Source: Company Reports) 
 
Valuation Methodology:P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of the company corrected 22.72% in the past six months and is currently trading above the average of its 52-week low-high trading range of $3.5 - $10.8. The company has a P/E ratio of 24.44x and an annual dividend yield of 2.51%. The company is focused on further strengthening all operational systems as well as executing on initiatives, which continue to improve the customer experience while maintaining operational excellence. We have valued the stock using P/CF multiple based illustrative relative valuation approach and arrived at a target price with a correction of single-digit (in percentage terms). Therefore, considering the above factors and current trading level, we have a watch stance on the stock at the current market price of $7.97, up by 0.126% on 28 May 2020.
 

Domino’s Pizza Enterprises Limited

 
COVID-19 Update: Domino’s Pizza Enterprises Limited (ASX: DMP) is a food retailer operating a pizza chain consisting of both franchisees owned, and company owned corporate stores. The market capitalisation of the company stood at $5.41 Bn as on 28 May 2020.The company recently provided an update on the COVID-19 impact on its business and stated that the top priority of DMP is to protect the well-being of its team members and customers. The company’s stores have continuously adapted the changing customer behaviour and community expectations, amid coronavirus outbreak. The company’s France branch has gradually been reopened, with ~70% of stores resuming their operations. Domino’s New Zealand stores are expected to be reopened by 28 April 2020. Japan and Germany recorded robust sales performance. Coming to the sales in Australia and Europe, the company witnessed positive growth in its Same Store Sales performance, but new consumer behaviour is affecting individual stores in each market.
 
What to Expect:The company has a robust balance sheet with no short-term debt and renewal of committed debt facilities due in 1HFY23. As at 27 March 2020, DMP had undrawn committed debt facilities and cash of more than $260 million. Over the medium-term, the company expects more than 7% to 9% growth in new store openings and ~3% to 6% per year growth in Same Store Sales. In FY21, the stores opening will be reliant on local market conditions relating to COVID-19 uncertainties.
 
1HFY20 Key Highlights: During the period, the company reported network sales of $1,582.2 million, an increase of 10.6% year over year. Online sales went up by 18.8% year over year and came in at $1,109.8 million. Same Store Sales witnessed a growth of 4.1% in 1HFY20. The company reported NPAT and EBITDA of $72.6 million and $151 million, which went up 6.4% and 10%, respectively, year over year.
 
 

Key Highlights (Source: Company Reports)
 
Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of DMP is trading very close to its 52-weeks’ high level of $66.19. The stock of DMP gave a positive return of ~23.37% in the last one month. Debt to Equity ratio of the company stood at 3.38x in 1HFY20 as compared to the industry median of 0.54x. We have valued the stock using EV/Sales multiple based illustrative relative valuation approach and arrived at a target price with a correction of single-digit (in percentage terms). Thus, it can be said that the stock of DMP is overvalued at the current juncture. Based on the above factors, current trading level and COVID-19 led uncertainties, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the current market price of $62.67 per share, down by 0.064% on 28 May 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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