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Collins Foods Ltd (ASX:CKF) shares surge higher on Taco Bell plans

Source: Taco Bell

One of the better performers on the market on Thursday has been the Collins Foods Ltd (ASX: CKF) share price.

In early afternoon trade the restaurant operator’s shares are up 5.5% to $6.45.

Why are Collins Foods’ shares on the rise today?

While Collins Foods’ generates the majority of its revenue from its KFC businesses, it isn’t the only quick service restaurant brand under its umbrella.

Another brand that Collins Foods has in its stable is Taco Bell. It opened its first Taco Bell in Annerley, Brisbane in 2017 and in August announced plans to open a further three restaurants in Robina, Cleveland, and North Lakes before the end of 2018.

The good news for Tex-Mex lovers is that it won’t be long until even more Taco Bells open up across Australia.

This morning Collins Foods announced that it has entered into a Development Agreement with Yum! Brands that will govern the roll-out of more than 50 new Taco Bell restaurants across multiple states in Australia between January 2019 and December 2021.

According to the release, the Development Agreement covers three Australian states including Queensland, specifies an annual new build restaurant number, and provides Collins Foods with the right of first offer in relation to the establishment of new Taco Bell restaurants across the relevant states. The roll-out will be funded from internally generated cash flows.

Managing director and CEO, Graham Maxwell, appears optimistic on the agreement.

He stated that: “We have seen tremendous enthusiasm for the Taco Bell brand in Australia, and this is reflected in the continued strong performance of our Annerley restaurant. We believe in the significant growth potential of Taco Bell, and are pleased to have the strong confidence of Yum! Brands to grow Taco Bell’s presence across Queensland and into other markets.”

Should you invest?

While the restaurant in Annerley has clearly been a success, it is worth noting that Taco Bell has tried and failed in Australia twice before. Because of this, I am cautiously optimistic on these plans.

But given the company’s undemanding valuation and the growth potential of its European KFC business, I continue to believe it would be a good buy and hold investment.

I would put it up there with Costa Group Holdings Ltd (ASX: CGC) and Domino’s Pizza Enterprises Ltd (ASX: DMP) as a food share to buy this month.

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Returns as of 6th October 2020

Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended Collins Foods Limited and Domino's Pizza Enterprises Limited. 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 Scott Phillips.

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