Collins Food Limited (ASX: CKF) is a KFC franchisee in Australia and Europe, a Taco Bell franchisee in Australia as well as the owner of Sizzler restaurants in Australia and the franchisor for Sizzler in Asia. Collins Food has a market capitalisation of A$974 million.

What are the key features of Collins Food’s FY20 results?

Revenue for FY20 (the year ending 3 May 2020) is $981.7 million, up 8.7% compared with the previous period. Underlying net profit after tax for FY20 is $47.3 million, up 5.1% compared with the previous period. Net debt for FY20 is $203.2 million, down 4.3% compared with the previous period. Collins Food also paid a final dividend of A10.5 cents per ordinary share (fully franked), this brings the total FY20 dividend to A20.0 cents per ordinary share (fully franked), up 2.5% compared with the previous period.

What are the drivers of this result?

The main driver of this positive result was KFC Australia’s performance, particularly during the peak of COVID-19. KFC Australia reported same store sales (SSS) growth of 3.5% in FY20. This is only slightly down from the previous years SSS growth of 3.7%. This result was made possible as most KFC’s drive through operations continued during the peak of COVID-19 and home delivery services played an important role ensuring that consumers had access to KFC.

Unfortunately, KFC Europe reported an SSS decline of 5.8%, declining further than the previous year result of an SSS decline of 3.7%. COVID-19 restriction in Europe were more severe compared with restrictions in Australia. Considering this result, Collins Food is reviewing the pace of new builds across Germany and the Netherlands and is likely to delay several openings of new stores if conditions do not improve.

Sizzler has been the worst impacted by COVID-19 in Collin’s Food portfolio. Sizzler revenue in FY20 declined by 17.9%. This was mainly driver by dine-in restrictions and a lower restaurant count, three restaurants have closed in Australia during this financial year.

What is the outlook for Collins Food? 

The short-term outlook for Collins Food is positive, as shown from this result. Collins Food short-term outlook is positive on the basis that the most of their stores can operate takeaway services and home delivery services. This ensures that if there is a second wave of COVID-19 in Australia and/or Europe, Collins Food may be able to still operate.

The long-term outlook for Collins Food is positive with several new stores from KFC and Taco Bell opening around Australia and Europe. However, it is important to note that discretionary spending on fast food is dependent on income generation of economic agents. If wage growth continues to be stagnated, and domestic economic conditions in Australia and Europe continue to weaken, this could limit the ability for consumers to purchase this type of food, as it is not a necessity and as cheap as other food sources.

What is the market reaction to Collin’s Food FY20 result?

The market reaction to Collins Food FY20 result is positive. Collins Food is up around 12% and is currently trading at A$9.40. Collins Food trades at a forward P/E ratio in the low-twenties and an annual dividend yield of around 2.3% (fully franked).


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June 30, 2020