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Why the Collins Foods Ltd share price jumped 7% today

What: Shares in Collins Foods Ltd (ASX: CKF) have leapt 7% on Thursday after the group announced an expansion into New South Wales and Victoria via the $24.5 million acquisition of 13 KFC restaurants.

According to the ASX release, Collins Foods has entered into a binding agreement to acquire the restaurants located around the NSW and Victorian border.

So What: The acquisition further strengthens Collins Foods’ position as the largest KFC franchisee in Australia and sets the stage for further expansion across these two heavily populated states.

The company has provided guidance that the acquisition will be immediately earnings per share accretive with opportunities to capture synergies and improve margins.

This acquisition takes the total number of KFC restaurants owned by Collins Foods to 191 with the group now operating across its home state of Queensland as well as Western Australia, Northern Territory and now NSW and Victoria.

Now What: It may surprise some readers to learn that Collins Foods’ share price has actually outperformed Domino’s Pizza Enterprises Ltd. (ASX: DMP) over the past year with a gain of 80% compared to 76% for Domino’s.

Over the past five years however Domino’s has vastly outperformed with a gain of close to 1,000%. In contrast, Collins Foods’ share price has risen around 120%.

With Collins Foods likely to take a leading role in further consolidation of the KFC franchisee sector in NSW and Victoria, growth investors will no doubt be paying close attention as to whether or not Collins Foods can replicate Domino’s success.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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