FY20 report: Collins Foods (CKF) shares jump 17%


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The Collins Foods (ASX: CKF) share price jumped 17% today after releasing its FY20 result.

What is Collins Foods?

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.

What did Collins Foods report in FY20?

The company reported that FY20 revenue rose by 8.9% to $981.7 million. KFC Australia delivered same store sales (SSS) growth of 3.5%. KFC Europe suffered a SSS decline of 5.8%, mainly due to COVID-19. Taco Bell is still expanding with a shift towards drive-thru and delivery. During the period, six new restaurants were opened in Queensland and two in Victoria, bringing the total to 12.

Excluding the accounting changes due to AASB 16, underlying EBITDA (click here to learn what EBITDA means) rose by 6.3% to $120.6 million. The KFC Australia underlying EBITDA margin was 16.8% (up from 16.6%) due to economies of scale and effective cost controls.

Similarly excluding the accounting changes due to AASB 16, underlying net profit rose 5.1% to $47.3 million and net operating cash flow was down $1.1 million to $96.4 million.

Including AASB 16, statutory EBITDA was $175.6 million and statutory net profit was $31.3 million and statutory net operating cash flow was $149.3 million.

Management comments

Incoming Collins Foods CEO Drew O’Malley said: “KFC Australia has once again shown that it is a safe and trusted brand that customers can rely on during uncertain times, allowing the business to quickly recover same store sales growth and continue its expansion into digital and delivery channels. 

We have also maintained a healthy balance sheet in a turbulent environment, thanks to strong operating cashflows, effective cash management, and tight controls on capital and operational expenditures during the peak of the crisis. As a result, our net leverage ratio has continued to reduce, as has our net debt, and we have more than ample headroom to support a robust dividend payout, as well as to fund our exciting plans for continued growth in the years to come.”

Dividend

Collins Foods announced a fully franked final dividend of 10.5 cents per share, the same as last year. But the total FY20 dividend was 20 cents, up from 19.5 cents last year.

Summary

In KFC Australia the company is aiming to build another nine to twelve new outlets. In Europe the company is aiming to open three to four restaurants. With Taco Bell the company wants to open four to six new outlets.

I think Collins Foods has proved far more resilient in the face of COVID-19 than some people may have expected. Growth of the dividend is very welcome and new outlets should help push earnings a little higher in FY21. The Collins Foods share price is now almost back to where it was before COVID-19, so I wouldn’t call it a bargain buy today. But the growth of Taco Bell and Europe KFC is attractive to me, so I’d be happy to buy some shares on any price weakness over the next six months.

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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

Jaz Harrison

Jaz Harrison

Jaz is a keen investor who loves to thoroughly poke holes in an investment idea before it has a chance of making it into her portfolio. Jaz invests for the long-term and doesn't sweat the small stuff. She strongly believes that empowering people with knowledge is the best way for them to take charge of their finances, which is exactly the approach she takes with her own money and investments.