Is Collins Foods Ltd the next Domino’s Pizza Enterprises Ltd?

After the market closed on Monday Australian KFC and Sizzler operator Collins Foods Ltd (ASX: CKF) announced that it has entered into a binding agreement to acquire 11 KFC restaurants located in Germany.

According to the release Collins Food will purchase the restaurants directly from their current franchisors KFC Great Britain and KFC Germany for €12.7 million ($18.3 million).

This will be the company’s first foray into the European market, following in the footsteps of Domino’s Pizza Enterprises Ltd. (ASX: DMP), which acquired the Germany-based pizza chain Joey’s Pizza at the end of last year.

Should the deal complete it will increase the total number of KFC stores under operation by Collins Food to 202.

Whilst 11 new restaurants doesn’t sound like much to get excited about, there is a lot of room to grow its restaurant count in Germany.

Collins Food has arrived in the German market at a time when KFC Germany plans to accelerate its growth strategy. Last month KFC Germany advised that it plans to more than double the KFC store network from 140 stores to 300 stores in the near future.

Collins Foods’ Managing Director and CEO Graham Maxwell had this to say on the deal:

“We are excited about the purchase of these 11 restaurants and the opportunity to be part of the dynamic growth plans for KFC in Germany. Having successfully run, acquired, integrated and grown KFC restaurants in Australia, this acquisition provides a unique new market entry opportunity for Collins Foods that will be immediately EPS accretive and add an additional growth channel to our business.”

So far the market reaction to the news has been positive and I can’t say I’m surprised. At just over 14x full year earnings Collins Foods’ shares appear to be great value and a much cheaper alternative to the likes of Domino’s and Retail Food Group Limited (ASX: RFG).

If you plan to invest in Collins Food or any other shares today I would highly recommend checking if you own these rotten shares. Now could be the perfect time to swap them out for something better if you ask me.

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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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