Collins Foods Limited

KFC Australia’s EBITDA and EBITDA margins Rose YoY: Collins Foods Limited (ASX: CKF) had earlier published their results for the half year of 2019 and the company’s KFC Australia business generated the revenues amounting to $330 million in the 1HY2019 which implies the growth of 21.9% on the YoY basis. The EBITDA and EBITDA margin of this business also witnessed the YoY rise in 1HY2019. KFC Australia’s EBITDA stood at $56.1 million which implies the YoY growth of 23.5% while the EBITDA margin rose 17 basis points or bps to 17.0%. These increases were witnessed largely because of the favourable momentum witnessed in the SSS growth percentage and the focus towards operational efficiencies as well as management of the margins.


KFC Australia (Source: Company Reports)

Collins Foods Limited has witnessed the healthy CAGR growth of 15.01% over the five-year period to FY 2018 in the revenues.The company’s gross margins at the end of FY 2018 stood at 52.7% which reflects the marginal rise of 0.2% on the YoY basis. Talking about the company’s valuation parameters, Collins Food Limited is having the EV/EBITDA ratio of 8.9x which reflects that the stock is undervalued as the industry is having an average of 15.0x.

Inclined Towards KFC Australia’s Business: Earlier, Collins Foods Limited has issued a release declaring the 1HY 2019 results. As demonstrated in the 1HY 2019 release, the company is being inclined towards the KFC Australia business and would be working towards the sales with the help of enhancing service speed as well as by focusing on the experience of the customers.

Moreover, the company is planning to enhance the home delivery footprint’s size with the help of multiple aggregators.   

Stock Recommendation: On the daily chart of Collins Foods Limited, Moving Average Convergence Divergence or MACD has been applied and default values were considered. As per the observation, the MACD line is about to cross the signal line. If this crossover occurs, there are expectations that the stock might witness an upward trend. Moreover, the company has been witnessing the decent CAGR growth in the revenues from the period of last five years to FY 2018. Factoring in the above variables, we maintain our “Buy” rating on the stock at the current market price of A$6.060 per share.    
 

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