Fast food franchisee Collins Foods (ASX: CKF) has released an update today, should you buy shares?
What is Collins Foods?
is a large fast food franchisee that operates KFC outlets in Australia, Germany and the Netherlands. It receives royalty revenue from Sizzler Asia outlets and Collins Foods has started to build Taco Bells in Australia. A fun fact is that Collins Foods’ ticker of CKF is an anagram of KFC, its main source of earnings.
Collins Foods’ update
Collins Foods has provided an update about its trading over the last five weeks of FY20, being 30 March to 3 May:
Compared to the prior year, KFC Australia same store sales (SSS) were down 0.9%. Excluding food courts, the rest of the network had SSS growth of 4% compared to last year with increased drive-thru and home delivery sales more than offsetting dine-in limitations.
Germany saw SSS sales down 28%, which is an improvement from the beginning of COVID-19. The Netherlands saw SSS sales down 40% with a lot of city centre locations.
Taco Bell sales have returned to pre-COVID levels. Meanwhile, Sizzler Australia has seen a big drop off of sales, so it’s now doing takeaway and home delivery.
The company said its balance sheet remains strong and has significant headroom in its current debt facilities and covenants.
Collins Foods Managing Director and CEO Graham Maxwell said: “We are living in extraordinary and unprecedented times, with an operating environment that is challenging and still fairly unpredictable. Pleasingly we have seen an improvement in sales in recent weeks and talk is now more focused on easing than increasing the level of Government restrictions in both Europe and Australia.
“Our business continues to show strong resilience despite the very challenging operating environment and is well positioned to manage through the recovery period of the respective markets we operate in.”
Is Collins Foods a buy?
With a strong recovery since March I don’t think it’s a screaming buy, though it’s still down by about a third. It depends how European buying habits go. If sales go back to normal then it’s good, Europe is where a lot of its growth prospects are. But we don’t know.
It may be a better idea to buy these technology shares:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.