CONTRARIAN fund manager Orbis Investment Management has plunged into one of the most out of favour stocks in the market, fast food restaurant owner Collins Foods, seizing a large stake in the struggling group to become among its biggest shareholders.
Heavy buying in Collins Foods by the fund manager between December 5 and December 28 helped the investor quickly amass an initial stake of 8.397 million shares, representing 9.03 per cent of Collins Foods' issued capital.
A final spending spree before New Year's Eve saw Orbis collect a total of 11.05 million shares.
This gives Orbis an 11.89 per cent holding in Collins Foods, making it roughly the group's third biggest investor. It has a history of taking large 10 per cent-plus holdings in small-caps and other stocks viewed as "down and out" by the market.
Collins Foods, which operates 119 KFC and 85 Sizzler restaurants, was the second largest sharemarket float of last year and earned itself the wrath of investors when only three months after its listing the company was forced to issue a savage profit downgrade.
Shares in Collins Foods lost a quarter of their market value in one day when the company warned its pro forma net profit after tax for the first half of this financial year would be roughly $8 million, compared with a prospectus forecast of $10.3 million. The share price dived to $1.43 and closed last year at $1.29.
The move by Orbis was preceded in November by the arrival on the company's share register of the Copulos Group, which is a fellow operator of 54 KFC restaurants in NSW. Copulos is the largest independent KFC franchisee in the country.
Copulos now owns just over 5 per cent of Collins Foods and bought in at an average price of $1.21 a share over a week-long buying spree shortly after its profit warning.
Collins Foods was floated by private equity group Pacific Equity Partners in August at $2.50 a share, and the fall-out has left a sour taste in the mouths of investors.
Notices issued to the Australian Securities Exchange show Orbis paid an average of $1.256 a share for Collins Foods stock early last month, with its second parcel of stock picked up in the last week of last month costing an average of $1.254 a share.
Orbis's other key investments include a 12 per cent stake in biotech company Acrux and an 18 per cent stake in Sigma Pharmaceuticals.