Collins Foods jumps on acquisition
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Collins Foods (CKF) jumped to a near two month high following acquisition news and the release of its half-year result.
The stock is up 5.5% at $1.73 after management said it expected a 15% uplift in 2014-15 normalised earnings per share from its $55.6 million buyout of privately-owned Competitive Foods.
The earnings upgrade might prove to be a little too conservative as it doesn’t take into account any synergies or margin improvement.
Competitive Foods owns 40 KFC restaurants in Western Australia and 4 in the Northern Territory. This brings the total number of KFC outlets in Collins Foods portfolio to 169.
Analysts polled on Bloomberg have pencilled in a 9.4% year-on-year lift in EPS to 20.4 cents for the year ending April 30, 2015. Consensus estimates call for a 5.8% improvement to EPS for 2013-14, but this will likely be upgraded slightly as well as the transaction is immediately EPS accretive.
This puts Collins Foods in a good position to grow dividends as it remains committed to a 50% payout ratio. This is important because research done by Eureka Report indicates that companies that can grow dividends every year tend to strongly outperform the broader market.
Management is also buying a 50% stake in hotdog outlet Snag Stand for $1.85 million. Collins Foods sees this as a strategic investment in an early stage concept, which it regards as being “very expandable”.
Collins Foods, which owns KFC outlets and Sizzler restaurants, posted a 0.8% increase in underlying net profit to $7.4 million for the six months to October 13, 2013, as sales came in flat at $198 million.
Management said it is confident it can meet market expectations for a full year net profit of $17.3 million, which is a 6.5% improvement over the previous year.
Collins Foods is part of the Uncapped 100.
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