Now could be a great time to buy Collins Foods Ltd (ASX: CKF) shares.
That's the view of analysts at Goldman Sachs, which believe the ASX 200 share is dirt cheap at current levels.
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What is the broker saying about this ASX 200 share?
Goldman notes that KFC restaurant operator Collins Foods released a market update this week.
And while the market wasn't overly pleased with the update and sent its shares sharply lower, the broker believes there was a lot to like.
That update revealed that the ASX 200 share was doubling down on its European expansion and cutting ties with the Taco Bell brand in Australia.
Commenting on the news, the broker said:
Collins Foods (CKF) have announced, in our view, a net positive strategic update centered on the 1) exit of the loss-making Taco Bell venture and 2) continued European KFC expansion into the larger and relatively more development-friendly Germany. While cognizant of the negatives related to challenged performance of KFC Netherlands and uncertainty around management changes, on balance we consider the update incrementally positive for Collins long-term outlook.
According to the note, Goldman is pleased with its expansion plans in Germany. It explains:
KFC Germany to drive further European expansion. We view Collins' intention to continue its expansion of the KFC brand into Germany as a positive, given 1) its existing presence in Germany, proximity and knowledge of the region; 2) support and exclusivity provided by YUM; and 3) Germany is a large, underpenetrated and relatively favorable development environment.
In respect to the Taco Bell brand, the broker feels now is the right time to bring to an end this loss-making adventure. It adds:
Taco Bell exit should allow renewed focus on KFC. We believe Taco Bell has drawn too much focus from Collins management and investors, and the exit of the loss-making operation should provide an immediate earnings uplift from FY27 with further potential upside from the reallocation of associated corporate costs.
Time to buy
In light of the above, Goldman has reaffirmed its buy rating and $10.00 price target on the ASX 200 share.
Based on its current share price of $8.00, this implies that potential upside of 25% is possible for investors over the next 12 months.
In addition, the broker believes that some reasonably attractive dividend yields are on the way for investors. It is forecasting dividend yields of 2.7% in FY 2025, then 3.2% in FY 2026, and finally 3.8% in FY 2027. It concludes:
We adjust our FY25/26/27E Npat forecasts by 0%/-2%/+1% driven by challenged performance and lower store roll-out in KFC Europe, with KFC Germany expected to take time to build a development pipeline, which is offset by the exit of the loss-making Taco Bell. Maintain Buy rating and A$10 price target.
