Analysts Show Mixed Appetite For Collins Foods

By Glenn Dyer | More Articles by Glenn Dyer

Collins Foods shares added another 1.5% yesterday on top of the 7% gain on Wednesday in the wake of a solid interim profit result and higher dividend.

And some analysts think the stock has a little way to run higher, but others are doubtful, such as UBS which yesterday downgraded the stock from buy to neutral given the company’s current valuation.

“After a material multiple re-rating – with an underlying one-year forward price-to-earnings multiple (PE) of 22.2 times, offering estimated three-year earnings per share EPS compound annual growth rate of more than 12 percent between FY20-23, we think valuation looks fair,” UBS told clients. “As such, we downgrade to Neutral.”

Despite the downgrade, UBS increased its 12-month price target for the stock to $10.60 (the shares closed at $10.52 yesterday) from $8.75, reflecting the recent share price strength.

Collins Foods said on Wednesday that its underlying half-year profit rose 9.1% to $23.9 million, thanks to a 4.9% rise in same-store sales at its KFC Australia franchises.

KFC has been a big spender on sport sports sponsorships and advertising in cricket and NRL, especially in the past year or so and the sharp rise in same-store sales, seems to be a payoff.

Collins said statutory profit for the 24 weeks to October 13 was up 12.1% to $24.1 million on a 9.2% rise in revenue to $448.8 million in the six months to October 13.

“Our KFC Australia network delivered enhanced same-store sales growth that, with new restaurant openings, drove strong growth in revenue,” chief executive Graham Maxwell said on Wednesday.

“Combined with management’s focus on maintaining strong cost control, KFC Australia’s earnings margin grew over the past six months.”

Collins lifted its interim dividend by half a cent to 9.5 cents a share, fully franked.

The company said around 100 of its 233 Australian KFC franchises were now offering delivery through Deliveroo and Menulog, which was helping boost sales volumes.

Collins Foods said it has opened six new KFC restaurants in Australia in the last seven and a half months and has started a multi-year rollout of digital menu boards from drive-thrus.

The company opened three new Taco Bells in Queensland in the past three months, bringing its total number of seven across Australia, and plans to open two more in Victoria before the end of the year.

It says it still plans to open 20 new Taco Bells in the next calendar year as it steps up its attempts to re-introduce the brand back into Australia.

Revenues at its 40 outlets in Germany and the Netherlands was up 11.8% to $63.7 million.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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