Consumer cyclical

Collins Foods announces strong FY22 result: Flags short-term margin hit

Tue 28 Jun 22, 11:00am (AEST)
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Key Points

  • Collins foods was up 12.53% at the open
  • The restaurant operator posted a 11.1% increase in revenue for the year ended 1 May 2022
  • Menu pricing is factoring into the group’s efforts to offset margin pressures

Collins Foods (ASX: CKF) was up 12.53% at the open after the restaurant operator of KFC, Taco Bell and Sizzler chains posted an 11.1% increase in revenue for the year ended 1 May 2022 to $1.1845bn with profit up 68.1% to $54.7m.

The company declared a fully franked final dividend of 15 cents per share (CPS), bringing the total dividend declared to 27 cents per share fully franked, an increase of 17.4% on the previous year.

Highlights of today’s full year announcement included:

  • Underlying earnings (EBITDA) from continuing operations up 12.6% to $209.2m

  • Statutory NPAT from continuing operations up 47.2% to $54.8m

  • Underlying NPAT from continuing operations up 25.0% to $59.7m

  • Operating cash flow $156.3m

The group remained self-funded during the year, enabling a slight reduction in net debt of $174.9m.

Higher prices

Drew O’Malley CEO notes while higher prices towards the end of its full year slightly reduced profit margins, the group is well positioned to manage through the current inflationary environment.

“The brands are in excellent shape to navigate this landscape… KFC Australia managed to deliver positive same store sales growth for the full year, despite cycling unprecedented growth in the prior year,” said O’Malley.

“We continue to amplify our strengths in convenience with further growth in digital, delivery and innovation, including the introduction of drone delivery and, more recently, UberEats.”

Operations

While revenue rose 6.1% across Australia’s 254 KFC restaurants (same store sales growth of 1.4% and underlying earnings up 3.5%), KFC Europe was the standout performer with the start of a corporate franchise agreement (CFA) in the Netherlands helping to boost revenue 41.2%.

Reflecting the addition of four new restaurants, Taco Bell revenue increased 27.5%.

While same store sales declined by -8.1% for the year, there was a noticeable improvement in the second half with a return to positive growth in the fourth quarter.

Sizzler Asia delivered 10.8% revenue growth and an earning profit of $1.7m.

Short-term margin compression

While menu pricing is factoring into the group’s efforts to offset margin pressures, management is focused on keeping value at the centre of customer appeal.

While some margin compression in the short-term appears unavoidable, in the mid-term management expect margins to recover.

The group is planning for 9 to 12 new KFC Australia restaurants and 2 to 5 new KFC Europe restaurants.

The group will also accelerate the Taco Bell rollout with 9 to 12 new builds, ensuring the brand remains on track to reach scale within 3 years.

“We continue to monitor the landscape for acquisition opportunities that fit our portfolio and capabilities,” management noted.

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Collins Foods share price over 12 months.

 

What brokers think

Collins Foods share price is down -29.61% over 12 months, and year-to-date had fallen from $13.30 to $8.90 yesterday.

Consensus on Collins Foods is Moderate Buy.

Based on Morningstar’s fair value of $11.97 the stock appears to be undervalued.

Based on the three brokers that cover Collins Foods (as reported on by FN Arena) the stock is currently trading with 44.1% upside to the target price of $12.88. However, two of these brokers have not updated since late 2021.

While UBS retained a Neutral rating (21/06/22) the target price was lowered to $9.15 from $14.10.

Watch for updates by the broker later this week following greater clarity on cost pressures announced today.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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