Collins Foods Shows Stable Share Prices Despite Sizzler Shutdown

  • CKF shows strong FY20 results with an 8.9 per cent growth in revenue
  • The last 9 Sizzler Restaurants are to shut down after performance reviews
  • Drew O’Malley succeeds Graham Maxwell as Chief Executive Officer with new Non-Executive Director Christine Holman joining team

On the 2nd of October, Collins Foods Limited (ASX: CKF) announced that the company would close down the last 9 ‘Sizzler’ restaurants in Australia. Following five years carefully reviewing financial performance across the chain, Sizzler was downgraded from previous ‘core business’ status. With CKF’s Annual Report detailing a rise in revenue and other key financial figures, this move reflects prudent management.

Unfortunately, Sizzler has been the most severely affected out of CKF’s other restaurants, KFC, and Taco Bell. The shutdowns will come with ease, as the restaurants are company-owned leasehold sites. All leases are due for renewal in the next four months, meaning lease break costs will be inconsequential.

Currently, there are plans for staff are to be reassigned across the KFC and Taco Bell network, with redundancy packages drawn where appropriate. The significance of the shutdowns is more sentimental with CEO Drew O’Malley citing the history of the brand, yet reminding stakeholders that Sizzler contributed less than 3 per cent of total revenue.

When looking to the results for FY20, the total business appears to be growing with 21 new restaurants opened. In total, there are now 295 restaurants operating worldwide, across Australia, Germany, the Netherlands and franchisors in Japan and Thailand.

The current stock price looks relatively robust despite the COVID-19 shutdowns, with 2019 levels met. This stability, in part, can be attributed by a record FY20 result with revenue increasing by 8.9 per cent to AUD981.7 million. Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) was up by 6.3 per cent to AUD120.6 million; also reflected in a 5.1 per cent increase in underlying net profit after tax. This growth is supported by operational efficiency improvements and an increase in digital and delivery usage.

Looking to the balance sheet, CKF finds itself in a sure position during a volatile time. This has been bolstered through an effective management team, making disciplined decisions about cash management, operational cash flow and capital expenditures during this time. With net debt now reduced, the company can fund growth plans as well as the final franked dividend of 10.5 cents per share. This boosted the total FY20 dividend to 20 cents, increased from FY19’s 19.5 cents.

On 1st of July, Chief Operating Officer, Drew O’Malley succeeded Graham Maxell as Chief Executive Officer. The systems put in place by Graham Maxwell over the past six years has allowed 240 restaurants to be opened in Australia and 41 in Germany and the Netherlands. Finally, Christine Holman is a new addition to the team as a Non-Executive Director, enhancing the team’s capabilities.

KOSEC Founder – Michael Kodari

Looking to the future, CKF looks to be in a position to grow under new management, maximising efficiencies in Australia and abroad. Investors should rest assured in the management expertise of the CKF team.

The above market analysis and news was provided by Michael Kodari from KOSEC securities. Michael is a philanthropist and a prominent expert in the stock market, CNBC Asia has referred him to as “the brightest 21st century entrepreneur in wealth management” and “a trailblazer within the Australian stock market”.