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CKF

Collins Foods Limited Response To COVID-19

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

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$557 million.

 

KFC-2


Update on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 372,757 and 16,231 deaths globally. As of today (25 March 2020), there have been over 2,136 confirmed cases and 8 have died of COVID-19 in Australia.


What has happened to Collins Food’s share price?

Over the last month, Collins food’s share price has fallen around 51% and is currently trading at A$5.20.


What is Collins Food response to COVID-19?

Collins Food announced (18 March 2020) that Australian KFC stores will only be operating the drive-through service at KFC stores. This is to limit people gathering in KFC stores to stop the potentially spreading COVID-19 to KFC employees. KFC Australia drive through accounts for approximately 80% of sales, which is positive news for Collins Food as most of their sales should continue, given that all stores do not have to be closed in the short-term. KFC Australia will continue to utilise home delivery services such as Menulog and Deliveroo to ensure that consumers have access to KFC Australia.

Further to Collins Food announcement (16 March 2020) to all KFC European stalls closing, the Dutch Government is now allowing restaurants to operate take-away, drive-through and delivery channels. In addition, all of Collins Food’s KFC restaurants in the Netherlands provide take-away, two-thirds are drive-through and over half provide a delivery service. Germany KFC stores will be allowed to continue utilising the drive-through services and permitted to utilise home delivery services.


What is the outlook for Collins Food?

The short-term outlook for Collins Food is neutral. Collin’s Food management note that to this date, the sales performance of Collins Foods’ KFC Australian restaurants has been in line with original expectations. This is a positive, as most drive-through services are expected to stay upon in the short-term. However, if KFC stores are forced to completely close, this could impact Collins Food’s FY20 earnings.

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 depend 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.


Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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