If you have room in your portfolio for some new additions, then it could be worth considering the ASX 200 share in this article.
That's the view of analysts at Goldman Sachs, which have just reiterated their buy rating on this share.
Which ASX 200 share?
The share in question is Collins Foods Ltd (ASX: CKF).
While its name may not be overly familiar, there's a fair chance that readers will have eaten in one of its KFC restaurants.
At the last count, the company was operating 285 restaurants in Australia, 16 in Germany, and 58 in the Netherlands.
What is the broker saying?
Goldman notes that the ASX 200 share is scheduled to release its half year results next week. It is expecting the company to deliver a result largely in line with the market's expectations. The broker said:
We estimate: 1) 1H25 Group adjusted EBITDA of A$102m (FactSet cons. A$102m), representing a margin of 14.4% (15.8% in 1H24), within the guidance of 14.2% to 14.5% provided in August, and driven by KFC Australia EBITDA of A$101m (FactSet cons. A$102m) and margin of 18.8% (20.2% in 1H24); 2) 1H25 Group revenue A$704m, +1.3% YoY, (FactSet cons. A$713m) driven by KFC Australia revenue of A$536m (+2.5% revenue growth; +0.0% SSSg) and KFC Europe revenue of A$142m (-3.5% revenue growth; -4.0% SSSg).
Its analysts also named a few items for investors to also look out for. They add:
We expect 1) margin outlook commentary, rather than specific guidance, to outline Group margin improvement into 2H25 and FY26, driven by a more favorable cost environment in KFC Australia (FactSet cons. Group Ebitda margin +0.8ppts in FY26 versus FY25); 2) trading update with improved SSSg momentum in KFC Australia, from +0.1% for 8 weeks to 18 August, driven by improved delivery and volume from promotional execution. KFC Europe revenue growth likely to remain challenged in the near-term; 3) comments from new CEO (started Nov 4), given prior experience, to centre on the opportunity for more aggressive expansion in Europe and M&A.
Time to buy
This morning, Goldman has reaffirmed its buy rating and $10.00 price target on the ASX 200 share, which implies potential upside of almost 18% for investors over the next 12 months.
And if you include dividends, the total potential return stretches to approximately 20%.
Overall, the broker believes that Collins Foods' shares are being undervalued by the market. It concludes:
Trading on 17x NTM PE multiple versus 20x for Collins 5-year average and the median of the QSR peer set, we see upside as margins expand and earnings grow into 2H25 and FY26. We marginally lower our FY25/26/27 EPS forecasts by 3%, driven by lower KFC Europe sales, and maintain our TP at AU$10/share. Buy.
