Collins Foods Limited

CKF Details

Stock Gained ~50% in the last 1-year:Collins Foods Limited (ASX: CKF) operates, manages and administrates restaurants in Australia, Europe, and Asia. The company currently holds 3 restaurant brands: KFC, Taco Bell, and Sizzler. As per the Annual Report 2018, the Group owns and operates 14 Sizzler restaurants in Australia. Collins Foods is the largest franchisee of KFC restaurants in Australia.

S&P Dow Jones Indices recently updated about the June 2019 Quarterly Rebalance of the S&P/ASX Indices wherein, it added Collins Foods Limited to S&P/ASX All Australian 200 Index, effective from June 24, 2019. There was an update that Eley Griffiths Group has ceased to be a substantial holder of CKF on 07 May 2019.

1H FY19 Results Performance:For the period, statutory net profit was reported at $21.5 million, up 69.0% against $12.7 million, pcp. With this, basic EPS (earnings per share) stood at 18.48 cents in 1HFY19 as compared to 11.31 cents in 1HFY18. Underlying net profit for the company stood at $21.9 Mn, posting a rise of $4.5 mn or a pcp growth of 25.9%. The company, in the period, recorded revenues of $411.0 mn, posting a pcp growth of 27.6%. Domestic KFC restaurants saw revenue growth of ~22% to $330.0 mn on pcp. Same Store Sales (SSS) growth came in at 3.1% using Yum! Methodology. Sizzler restaurants witnessed a pcp fall of 7.6% in statutory revenues to $22.2 Mn.


Income Statement (Source: Company Reports)
 
Operating cash flow grew by 80% with dividend payment growth at around 125% in the last 5-years. Capex by the company witnessed a substantial rise in the last 5 years, depicting growth in restaurant base. Net operating cash flow at $35.8 Mn stood higher against pcp, due to the cash growth witnessed by the KFC restaurant.

Cash outflow from investing activities at $23.9 Mn as the company completed and paid for the rest 3 KFC restaurants in South Australia and deployed additional capex in the existing network. The net cash outflow from financing stood at $10.5 mn due to the payment of dividend. Overall cash and equivalents came in marginally up as compared to the prior corresponding period. As on 14 October 2018, total debt on the accounting books was $331.3 mn. The facilities undrawn for the period stood at $42.4 mn.

At the current market price of $8.350 per share, the stock is trading at price to earnings multiple of 23.300x as compared to 12.2x of industry median. On EV/EBITDA front, the stock is trading at 10.5x as compared to 6.8x of industry median, showing overvalued at the current juncture. Further, the stock is trading close to its 52-week high of $8.600. Looking at the historical price movement, the stock has gained almost 50% returns in the last 1-year and ~26% return in the last 3 months. On the basis of above-mentioned facts, we believe that stock is trading at expensive valuations, hence, we recommend a “Sell” rating on the stock at the current market price of $8.350 per share (up 1.09% on June 19, 2019).

 
CKF Daily Chart (Source: Thomson Reuters)

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