Orbis gambles on big buy-in as fast food stocks continue to struggle

Heavy buying in Collins Foods by the fund manager between December 5 and December 28 helped it quickly amass an initial stake of 8.397 million shares, representing 9.03 per cent of Collins Foods' issued capital, before a final spending spree before New Year's Eve saw Orbis collect a total of 11.05 million shares. This gives Orbis, which has a history of taking 10 per cent-plus holdings in small caps and other stocks viewed by the market as "down and out", an 11.89 per cent holding in Collins Foods to make it roughly the group's third-biggest shareholder.

Collins Foods, which operates 119 KFC and 85 Sizzler restaurants, was the second-biggest sharemarket float of last year, and earned the wrath of investors when only three months after its listing it issued a savage profit downgrade.

Shares in Collins Foods lost a quarter of their value in one day, when the company warned its pro forma after-tax profit 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 2011 at $1.29.

Collins Foods was floated by private equity group Pacific Equity Partners in August at $2.50 a share, and the fallout has left a sour taste in the mouths of investors and dented the reputation of the private equity sector.

Notices issued to the Australian Securities Exchange show Orbis paid an average of $1.256 a share for Collins Foods stock early last month.

It picked up its second parcel of stock in the last week of December at an average of $1.254 a share.