Collins Foods Limited (ASX: CKF) Updates

Update: Tuesday 27 March 2012

Collins Foods (ASX: CKF) owns, operates and franchises KFC and Sizzler restaurants.

Collins has 119 KFC restaurants in Queensland, and two in Tweed Heads, NSW. 19 out of their 27 Australian-based Sizzler restaurants are in Queensland, with 5 in WA and 3 in NSW. It’s also the franchisor of 59 Sizzler restaurants in Asia, predominantly located in Thailand, Japan and China.

An opportunity to buy shares at a bargain price may soon occur.

A respected fund manager, Orbis Investment Management, continues to buy Collins Foods, they now own 17.4% of outstanding shares. They’ve bought over 60% of shares traded in the last month.

Orbis’ last three change of interest notices show they’re now the last buyer, 97% of volume in the most recent,  77% and 36% of volume for the prior notices.

Imagine how low the price may have fallen if Orbis had not been buying! $1 or less? Now that would be a one foot hurdle!

We may still get $1, but at around $1.10 Collins is a good two foot hurdle.

Orbis can only buy 2.6% more, so patient investors may soon be rewarded with a great entry price. Naturally there are no guarantees that we’ll get a lower price, but the odds are in our favour.

Over the medium term a rebound in Queensland trading conditions should stabilise the business and earnings.

Past Updates:

Monday, February 27th, 2012 
Collins Foods
 (ASX: CKF)

Collins Foods updated the market on summer trading this morning. There was no change to last week’s guidance that Pro Forma Net Profit After Tax (NPAT) for FY2012 will not vary materially from the bottom of the guidance range of $18-20m.

Trading conditions are tough and funds have continued to dump shares. Management advised that due to weak 3rd quarter sales the Company has downwardly revised its expectations for same store sales in the second half of FY2012 to a decline on prior year of 4.0% for KFC and 3.2% for
Sizzler.

An investment in CKF will require patience, as there appears little likelihood of good news on the horizon. We would not invest right now, despite the low price. 

Saturday, February 25th, 2012 
Collins Foods will update the market on Monday 27th February. Based on recent reports in the Australian Financial Review it seems clear that the company is struggling to hit the low end of its FY12 $18-20 million pro-forma NPAT guidance. A material deterioration in the guidance could result in a 20 per cent or greater haircut to the share price. We’ll keep you informed.

March 2012 Share Advisor
Collins Foods (ASX: CKF) was close to being our top pick last month and again this month. If it weren’t for low trading volumes, this purveyor of grease and starch may have made the starting lineup. Institutional investors remain shy, and most retail investors are yet to notice the opportunity.

Investment arms of NAB sold down their holdings in December and January; respected Orbis Investment Management was a buyer. With bad news baked into its share price, any positive news will send shares rocketing, while further bad news is unlikely to have much effect. In sum, Collins presents limited downside risk with the possibility of a double within two years.

February 2012 Share Advisor

Collins Foods (ASX: CKF) has been trading in a tight range since its disappointing inaugural results as a listed company. Institutional investors remain shy of a company that has already burnt several of their brethren, and most retail investors are yet to notice the opportunity. With bad news already baked into its share price, any positive news will send shares rocketing,
while further bad news is unlikely to have much effect. In sum, Collins presents limited downside risk with the possibility of a double within two years.
Key Stats: no dividend yet, $127 million market cap, P/E of 12.6.

Disclosure: Neither Dean Morel or Bruce Jackson have a position in Collins Food.