Shares in KFC merchant Collins Foods Limited (ASX: CKF) won’t stop rising as the franchisor’s entrepreneurial approach helped adjusted net profit lift 15.7% to $45.7 million over fiscal 2019.
This translated into total dividends climbing 14.7% to 19.5 cents per share as KFC same-store sales in Australia grew 3.7%.
One fly in the ointment is the group’s leverage with net debt of $212.5 million on 1.87x fiscal 2019’s EBITDA a level high enough to mean the business is higher up the risk curve.
Today the group announced that it has managed to “refinance” its bank debt facilities to limits of $265 million and €80 million. It also reported $210 million and €52 million of the new facilities will be drawn on financial close.
“The New Facilities will support our ongoing operational strategy in Australia and Internationally that will deliver long-term sustainable growth in earnings and shareholder value,” noted Collins Foods CEO Graham Maxwell.
The group also owns rights to the Taco Bell and Sizzler restaurant brands in Australia, with it also expanding its Sizzler restaurant chain in Asia.
The Australian business is benefiting from the popularity of KFC and rising margins on same-store sales growth related to digital, delivery and operational efficiencies.
Some of the same-store sales growth is also being supported by the growing popularity of takeaway delivery services like Menulog and Deliveroo.
It also plans to return its European operations to same-store sales growth via some innovative initiatives such as trialing table service off an à la carte menu, although I would not suggest taking a dinner date.
The group earned an adjusted 38.6 cents in earnings per share over fiscal 2019 to mean it changes hands for 27x trailing earnings with a 1.9% trailing yield. It has not provided guidance for fiscal 2020 and looks fully valued to me.
Others in the fast food space include struggling Retail Food Group Limited (ASX: RFG) or the more successful Domino’s Pizza Enterprises Ltd. (ASX: DMP).
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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.