Here’s why the Collins Foods Ltd share price is shooting higher today

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) may be following the lead of European and U.S. markets and heading lower today, but one share which is bucking the trend is Collins Foods Ltd (ASX: CKF).

The shares of the owner and operator of KFC in Australia are up by over 3% following the release of solid full year results.

Although sales were only up by 0.5% to $574.3 million for the year, underlying net profit after tax increased 22.3% to $30.1 million. On a per share basis this meant earnings of 32.3 cents per share.

Management had this to say about the result:

“Strong sales across our KFC restaurants were driven by excellent core product offerings combined with new product innovations and good value offers that kept customers coming back. We continue to take a disciplined approach to controlling costs and improving efficiency and have achieved further margin improvements across all restaurants.”

It is worth noting that Collins Foods’ last fiscal year was a 53-week year. Excluding the extra trading week in FY 2015, sales would have been up by 2.4%.

Whilst I would prefer to see sales growing at a faster pace, in such a competitive environment this is still a reasonably good performance in my opinion. It plans to open eight new KFC stores in FY 2017, which I expect will help boost the top line next year.

One thing I was very impressed with was the improvement in margins. During the year Collins Foods managed to expand its EBITDA margin 120 basis points to 13%. The great work it put in with cost control is what enabled it to grow its earnings at a faster pace than sales.

The good news is that management is working toward maintaining these margins and believes that in FY 2017 there are further margin opportunities in its Western Australia and Northern Territory businesses.

Whilst I still have a preference for industry-peer Retail Food Group Limited (ASX: RFG), I do believe Collins Food is positioned for another solid performance in FY 2017 which could make it a good addition to your portfolio today. With the shares trading at just a touch over 15x earnings they look good value to me.

Foolish takeaway

I see Collins Foods as a great way for investors to get exposure to the quick service restaurant industry. I don’t expect it to produce the strong growth of a company like Domino’s Pizza Enterprises Ltd. (ASX: DMP), but I believe it should provide investors with steady returns over the next few years.

Alternatively, these three blue chip shares could be exactly what you need to take your portfolio to the next level. Solid dividends and potential share price gains make them great options in my opinion.

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Motley Fool contributor James Mickleboro 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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