Should you be looking at these three big names in fast food industry?

Collins Foods Ltd

CKF Details
Working capital negative in FY 16: Collins Foods Ltd (ASX: CKF) has reported a 0.5 % increase in the revenue to $574.3 million in FY16 driven by growth of 3.1% year on year (yoy) in the KFC same store sales (SSS). CKF has built 6 new KFC restaurants in FY 16 and remodeled 20 KFC (10 in QLD and 10 in WA) while acquired 13 KFC restaurants at New South Wales and Victorian border, which would lead to an increase in the number of KFC restaurants to 191. Additionally, CKF has planned in FY 17 for the KFC business to open up to 8 new restaurant builds and 14 major remodels. CKF would consolidate the 13 KFC restaurants into the CKF’s network and continue to pursue further acquisition opportunities. Additionally, the Sizzler Asia is growing with 5 new restaurants opened in Thailand and 1 new restaurant opened in Japan. There is a plan for 6 further new restaurant openings in FY17. Meanwhile, the statutory result showed NPAT at $29.1m compared to statutory NPAT loss of $10.4m in FY 15, driven by the group’s ongoing cost focus. The underlying NPAT grew 22.3% to $30.1 million while the underlying EBITDA enhanced by 10.7% to $74.6m. In addition, the net operating cash flow before interest, tax and working capital movements has increased by $5.1m. However, the working capital was negative due to payment of Yum! royalty held over from FY15.

 

Financial Performance of FY 16 (Source: Company Reports)
 
Moreover, Sizzler Australia’s overall revenue fell 17.9% and 4 restaurants were closed in the FY 16. The overall same store sales growth momentum had slowed in the second half of 2016 on the back of higher comps against FY 15. The group expects the same trend to continue and forecasts a higher comp rolls in the first half of FY17, which could affect the revenue growth. We give an “Expensive” recommendation on the stock at the current price of $4.53

 
CKF Daily Chart (Source: Thomson Reuters)

Domino’s Pizza Enterprises Ltd

DMP Details
Growing debt for funding acquisitions: Domino's Pizza Enterprises Ltd (ASX: DMP) reported a net profit growth of 43.6% to $92 million in FY 16 on network sales growth of 32.7% to $1,964 million on the prior corresponding period. DMP reported earnings per share of 105.4 cents per share, which is a growth of 41.9% over the year. The results come from significant organic growth yielding strong Same Store Sales (SSS), leveraging sophisticated digital platforms while adding 484 stores to the Group. DMP posted the double digital SSS of 10.9%, with Australia and New Zealand (ANZ) recording its second consecutive year of double digit SSS of 14.8%, while Europe reported strong Europe SSS of 8.2%. DMP is a big beneficiary of the digital shift with orders commonly placed on mobile apps by text message or emoji, with fast delivery times guaranteed.

 

Financial Performance of FY 16 (Source: Company Reports)
 
On the other hand, the net capex and investments grew ahead of guidance due to the early payment of German Earnout of $33.7m, coupled with foreign exchange and accelerated store openings in Japan. There is an additional debt taken due to European acquisitions (excluding Minority Interest) and a short term working capital facility in Japan. The gearing has thus increased as a result of Pizza Sprint and German acquisitions. Meanwhile, DMP stock rose 24.96% in the last six months (as of October 07, 2016) placing the stock at an unreasonable P/E. Accordingly, we give an “Expensive” recommendation on the stock at the current price of $68.66

 
DMP Daily Chart (Source: Thomson Reuters)

Retail Food Group Ltd

RFG Details
Hudson Pacific acquisition: Retail Food Group Ltd (ASX: RFG) has raised over $35.6 million before costs after completing the DRP Shortfall Placement. Around 5.2 million ordinary shares have been placed with institutional investors and sophisticated investors, at $6.85 per share. In addition, RFG has entered into a Share Purchase Agreement (SPA) to acquire the business and operations of Hudson Pacific Corporation (HPC). The Hudson Pacific acquisition would be EPS accretive and would enhance the present scale of foodservice activities undertaken.

 

Financial Performance summary (Source: Company Reports)
 
Moreover, RFG’s NPAT enhanced by 20.5% to $66.4 million over the previous corresponding period. On the other hand, we believe RFG stock has already rallied over 35.4% in the last six months (as of October 07, 2016), placing the stock at a slightly high P/E. We give an “Expensive” recommendation on the stock at the current price of $6.89

 
RFG Daily Chart (Source: Thomson Reuters)

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