Australians love eating out, with the budget end of the food retail market known to be resilient in times of economic stress.
The idea is that when household budgets tighten up, consumers will cut spending in expensive restaurants and resort to the low-cost options for relief from cooking.
Perhaps this is why after 13 interest rate hikes two of the best known quick-service food retail shares on the ASX rocketed last month.
And what's more, Glenmore portfolio manager Robert Gregory is backing them for further gains:
These food retail shares still going for 'very low earnings multiples'
Retail Food Group Ltd (ASX: RFG) shares gained a huge 27% last month, with Gregory attributed to corporate manoeuvring.
"Retail Food Group announced the acquisition of Queensland based Beefy's Pies, a vertically integrated café business with 9 retail outlets, for a cost of $10 million — including $2.5 million in potential earn-out payments."
The takeover was funded by cash and worked out to be an enterprise value to EBITDA multiple of just 4, he said in his memo to clients.
The company is best known for franchises like Gloria Jean's Coffee, Donut King, Michel's Patisserie, and Crust Pizza.
Also in November, RFG management updated investors at its annual general meeting.
"Whilst the company did not provide specific earnings guidance, it did state group same store sales for the first 17 weeks were up +1.8% vs pcp, which was broadly in line with expectations."
Despite the massive rise in recent weeks, Gregory pointed out RFG shares are still dirt cheap for those willing to buy now.
"The stock trades on very low earnings multiples with the stock price performance in the month also reflecting the cheap starting point for its valuation."
Killing it with chicken
Kentucky Fried Chicken licensee Collins Foods Ltd (ASX: CKF) also saw its shares surge in November, to eventually gain 24%.
Gregory pointed out that investors were excited about how the first half results were 10% ahead of expectations.
"EBITDA for the half was $109.9 million, up +17% vs pcp, with KFC Europe, KFC Australia and, to a lesser extent, Taco Bell all performing better than expected.
"The result once again showed the strength of the KFC brand, despite the well documented challenging trading conditions for consumers."
He added that operating cash flow was "strong", which resulted in a reduction of "debt and interest expense".
The second half is also off to a cracking start.
"CKF said the first six weeks of 2H24 had started positively with like-for-like sales of +2.9% KFC Australia, +8.1% KFC Netherlands, +8.6% KFC Germany, and +8.7% Taco Bell."
