CKF is the largest KFC franchisee in Australia, with over 228 outlets plus the company is rolling out KFCs across Germany and the Netherlands, it has also entered into a development agreement to build 50 Taco Bell restaurants over the next 3 years in QLD, WA and VIC. Finally, Collins receives royalties from Sizzler restaurants in Asia in addition to revenue from a number of locally company-operated Sizzler restaurants i.e. it’s a $1bn fast food goliath.
CKF has endured a tough 18 months almost halving in price as the business failed to meet earnings expectations with the main issue being that rising inflation was pressuring margins, however, it was encouraging to see insiders buying, 4 directors bought parcels in the $40k-$80 region, better than the other side of the ledger – insiders now own over 8% of CKF. Whilst uncertainty around important variables such as pricing, consumer strength & inflation persist for the overall business, we still like the longer-term story and see scope for an improved cost environment over FY24.
In a recession, restaurants feel the pain first as consumers tighten their belts and eat out less, this is already happening in Australia, however, some people trade down from casual dining to cheaper fast food chains i.e. KFC will often be closer, cheaper, and faster. During the GFC’s painful recession, McDonald’s performed well making it and similar plays like Collins Foods (CKF) solid defensive plays, especially for investors wanting at least some portfolio exposure to the Australian consumer.
- We expect the current tough macro / inflationary environment will weigh on CKF, however, a pullback under $8.50 will provide attractive risk/reward in our view.
MM now likes CKF 6-8% lower
Add To Hit List
