Australia's listed KFC franchisee, Collins Foods Ltd (ASX: CKF), released its half-yearly results to the market this morning. In addition to decent profit growth, the company also announced it was making its first overseas acquisition, in Germany.
Here's what you need to know:
- Revenues rose 4.7% to $282 million
- Net Profit After Tax rose 7.8% to $15 million
- Earnings per share of 16 cents per share
- Interim dividend flat at 8 cents per share
- More info on recently announced acquisition of 11 KFC restaurants in Germany
So What?
Most of the growth this half was generated by acquisitions, with Collins noting that an increase in the number of restaurants was the primary driver of higher revenues. The KFC franchises have fairly high fixed costs, so Collins must grow sales at existing restaurants or acquire new ones in order to grow further. Domino's Pizza Enterprises Ltd (ASX: DMP) is a good example of how a string of acquisitions combined with rapid organic sales growth can be parlayed into phenomenal success.
As a franchisee of KFC owner Yum! Brands however, Collins Foods is both burdened by franchise fees and also lacks the same ability to innovate its product and service offering that Domino's has.
Collins does have an acquisitive mindset though, and the recent purchase of 11 German KFCs in Stuttgart and Düsseldorf show that the company is now having a crack at expanding overseas. The price of €12.7 million seems a little high, given the stores are generating €22.5 million in sales per annum. If Collins is able to achieve similar net profit after tax margins in these stores as in its Australian ones (just over 5%) that would work out to be a Price to Earnings (P/E) ratio of around 10. Germany has a different tax, regulatory, product sourcing, and wage environment though, so this figure is just for illustration.
Now What?
Collins has a fair amount of debt, and the company has shown no signs of slowing the pace of its acquisitions. This is not a company that would suit every investor, although it is reasonably priced and has a good track record in its operations over the past few years. Collins has also proven quite adept at growing its sales organically. For those comfortable with businesses using debt to grow, Collins could be right up your alley.
