Results: Is the Collins Foods Ltd (ASX:CKF) share price in the buy zone?

The Collins Foods Ltd (ASX: CKF) share price has been a solid performer in morning trade on Wednesday.

At the time of writing the quick service restaurant operator’s shares are up over 5% to $6.92 following the release of its half year results.

What happened in the first half?

In the first half Collins Foods delivered a 27.6% increase in revenue to $411 million. This was driven by a 3.1% lift in KFC Australia same store sales, two new restaurant openings in Australia, and its expansion in Europe.

The highlight of the half for me was the performance of its KFC Australia business which grew EBITDA by 23.5% to $56.1 million. The segment benefited from new store openings and improving EBITDA margins which were underpinned by its focus on operational efficiencies and margin management across the network.

Pleasingly, same store sales growth for the stores in Western Australia is now firmly in positive territory, further supporting the improved margin.

Looking ahead, management intends to add 40 to 45 new KFC restaurants in Australia over the next 5 years. At the end of the half the segment had 228 restaurants.

The KFC Europe business wasn’t quite as strong due to the impact of unusually hot weather during June and August. It delivered a 121.5% increase in revenue to $56.9 million, reflecting the full half-year earnings from its Netherlands business. However, same store sales were down 2.5%.

The company finished the period with 17 restaurants in Germany and 18 in the Netherlands. Management believes there is an attractive long-term growth pathway for the company in these markets.

It also feels this way about the Taco Bell brand in Australia. It plans to build 50 restaurants over the next three calendar years and appears to believe that it could be a key driver of future growth.

Should you invest?

Based on its underlying first half EPS of 18.8 cents, I estimate that Collins Foods’ shares are changing hands at 17x trailing earnings today.

I don’t think this is at all demanding for a company with such a positive long term outlook. In light of this, I would consider it a buy along with fellow food shares Costa Group Holdings Ltd (ASX: CGC) and Domino’s Pizza Enterprises Ltd (ASX: DMP).

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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