Collins Foods Limited

CKF Details

Double-Digit Growth in Topline: Collins Foods Limited (ASX: CKF) is engaged in the operation, management, and administration of restaurants in Australia, Europe and Asia. The market capitalisation of the company stood at ~$1.08 billion as on 29^th January 2021.  Recently, the company has appointed Helen Moore as Chief Operating Officer of KFC Australia, which will be effective from early FY22. Helen would be responsible for the operation of the KFC Australia, encompassing nearly 250 KFC restaurants. During 1H FY21, the company witnessed double-digit revenue growth of 11.3% to $499.6 million over pcp (1H FY20). This was mainly aided by record same-store sales growth of over 12.4% in KFC Australia. Underlying EBITDA (pre AASB 16) for the half-year amounted to $63.7 million, reflecting a rise of 10.5% over 1H FY20. In addition, the company declared fully franked interim dividend of 10.5 cents per ordinary share, which rose by 10.5% over pcp.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company is expecting growth opportunities across each of its business units. In addition, the company is focused on strengthening the operational foundations and ramping up its new restaurant pipelines to deliver on the opportunities.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During 1HFY21, the company witnessed improvement in net debt to $170.7 million against $217.3 million in 1H FY20. As a result, the net leverage ratio also improved to 1.35x in 1H FY21 as compared to 1.84x in 1H FY20. In the last nine months, the stock of CKF has moved up by 38.28%. Currently, the stock is trading above its 52-week low-high average of $7.320. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with correction of high single digit (in percentage terms). Thus, it seems that the stock is overvalued at the current trading level. On a technical analysis front, the stock has a support level of ~$7.369 and a resistance level of ~$10.678. Therefore, considering the aforesaid facts, steep price movement in the past few months, and valuation, we are of the view that most of the positive factors have been discounted at the current trading level. Hence, we give an “Expensive” rating on the stock at the current market price of $9.650 per share, up by 3.651% on 29^th January 2021. We further suggest investors to wait for a better entry-level.

CKF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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