UBS acknowledges the Collins Foods brands are well-positioned on a relative basis and the sector should fare better in a softer consumer environment.
History has indicated consumers tend to trade down to quick service value offerings and, even with price increases, KFC remains at a material discount compared with McDonald’s. Nevertheless, the broker believes the market needs to account for material cost inflation.
The valuation is not overly demanding but, before considering a more positive view, UBS would appreciate more clarity on the extent of cost pressures and the offsets at the results on June 28. Neutral retained. Target is reduced to $9.15 from $14.10.
Sector: Consumer Services.
Target price is $9.15.Current Price is $8.38. Difference: $0.77 – (brackets indicate current price is over target). If CKF meets the UBS target it will return approximately 8% (excluding dividends, fees and charges – negative figures indicate an expected loss).