Collins Foods Limited

Acquisitions and Same Store Sales Supported CKF’s HY 2019: Not so long ago, Collins Foods Limited (ASX: CKF) had posted the results for half-year ended October 14, 2018. In the said period, the company posted revenues of $411.0 million which implies the rise of 27.6% on the YoY basis. The same store sales of KFC Australia witnessed 3.1% rise and the company opened two new restaurants in the Australian region. The company also stated that they have wrapped up the final three restaurants acquisitions in the Australian region from Yum! 


KFC Australia (Source: Company Reports)

With respect to KFC Australia, the company had stated that the primary focus would be towards operations, delivery as well as digital. Thecompany stated that robust deployments towards the KFC digital have been helping the company in terms of growth with regards to the App sales as well as the expansion of e-commerce and digital marketing initiatives.

Decent Position from Margins Perspective: Collins Food Limited seems to be in the decent position with regards to the key margins as its gross margins at the end of H1 FY 2019 stood at 53.1% which is higher as compared to the industry median of 52.8% which reflects the strength in the company’s sales. Moreover, the company’s net margin at the end of H1 FY 2019 stood at 5.2% which implies the rise of 1.2% on the YoY basis. The company’s return on equity or ROE has also witnessed a rise of 2% YoY and stood at 6.4% at the end of H1 FY 2019.

Focused Towards KFC Australia: Collins Food Limited is expected to be focused on KFC Australia’s growth strategy. Theywould be working towards the activities which would support the sales. The company would be improving the speed of service as well as it would be working towards the customer experience. The company stated that because of the robust balance sheet as well as increasing operating cashflows, CKF happens to be in a strong position to tap the opportunities for growth.

Stock Recommendation: On the daily chart of Collins Foods Limited, Moving Average Convergence Divergence or MACD has been applied and default values were used for the purposes. After careful observation, it was noticed that the MACD line has crossed the signal line and is moving in the upward direction which signifies the bullish momentum. Therefore, there are expectations that the company’s stock might witness an upward momentum. In the time span of the previous 6 months, the company’s stock has delivered the return of 17.94%.

Moreover, there are expectations that the company’s future performance would be aided by a robust balance sheet. The decent position of margins of Collins Food Limited might attract the market players. Based on the backdrop of the above-mentioned factors, we maintain our “Buy” rating on the stock at the current market price of A$6.290 per share (up 1.78% on January 31, 2019).   
 

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