Collins Foods Limited

Excellent 1H FY 2019 Results:Collins Foods Limited (ASX: CKF) is engaged in the operation, management and administration of restaurants in Australia, Europe, and Asia. The company recently updated that Eley Griffiths Group has been ceased to be a substantial holder of it, since 7 May 2019.

1HFY19 Financial Performance:Statutory net revenue came in at $411 million, posting a growth of 27.6% in 1HFY19. Group underlying EBITDA for 1HFY19 at $53.7 million witnessed a growth of 31.7% on pcp. The Group reported a statutory net profit of $21.5 million for the first half of FY19. Underlying net profit was $21.9 million representing a rise of 25.9% as compared to the underlying net profit of $17.4 million reported in the previous corresponding period.


Key Financial Metrics (Source: Company Reports)

Revenues in the domestic KFC restaurants segment at $330.0 million was up 21.9% on pcp. EBITDA was up 23.5% to $56.1 million as compared to $45.5 million in 1HFY18. For KFC restaurants, EBITDA margins came in at 17.0% as compared to 16.8% in 1HFY18, underpinned by ongoing focus on operational efficiencies and margin management across the network.

In the Sizzler restaurants segment, statutory revenues saw a decrease of 7.6% (pcp) to $22.2 million, reflecting its decreasing number of restaurants, down 2 Sizzler restaurants in 1HFY19.Lower revenue from Australia was offset by increasing Sizzler Asia royalty revenue which saw a growth of 19.0% on the back of additional restaurant openings and growth in same store sales.

Cash Flow and Balance Sheet at the end of 1HFY19:Operating cash flows of $35.8 millioncame in higher than the prior comparable period, driven by the growth in KFC restaurant segment. Cash flow from investing activities saw a net outflow of $23.9 million, which reflected the completion of and payment for the remaining three KFC restaurants in South Australia.

Net cash outflow from financing activities of $10.5 million reflected the dividend payment by the company. The overall cash and cash equivalents were slightly higher than the prior reporting period.

FY19 Outlook:The Management is focused on the growth strategy of KFC Australia business, increasing sales by improving the speed of service and delivering a consistent customer experience. The Management expects to build and open a total of 8 KFC restaurants in Australia by the end of FY19. Additionally, the company is looking to significantly expand the size of the home delivery footprint, going forward.

The company plans to open 2 new restaurants in the Netherlands in FY19. Here, the Management will focus on to improve margins and optimise the back-office support centre to achieve the cost synergies benefits and efficiencies.

Stock Recommendation:The strong operational results have been achieved in KFC Australia operations. With a strong balance sheet and increasing operating cashflows, the company has been delivering well on growth opportunities.Looking at the price performance, the stock has generated a gain of ~43% in last 1-year whereas it gained ~28% in last 3-months. Currently, the stock is trading towards its 52-week high of $8.350. Considering the above-mentioned facts and price performance, we believe that most of the positive factors are priced in at the current level and we look forward for further catalysts to take the stock to new highs. Hence, we recommend a “Sell” rating on the stock at the current market price of $8.100 per share (up 0.872% on 07 June 2019.)

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