Collins Food Group (CKF)
Shares in the country’s largest KFC franchisee have lifted 27% to today’s close of $2.17 since our initial “buy” recommendation. A majority of its KFC and Sizzler stores are located in Queensland. However, the company has increased its KFC stores through acquiring the largest KFC franchisor in Northern Territory and Western Australia. The new stores will produce at least 30% earnings growth in 2014-15, although investors should expect single digit growth rates over the long term. This growth comes at a high capital cost, due to most existing KFC stores being in the mature phase.
Sizzler has been a disaster, and management is yet to employ a strategy to turn these stores around. Stephen Copulos was a non-executive director who had been agitating for management to exit the Sizzler stores. He lost that campaign last week with the announcement of his retirement.
Collins Food (CKF) is not overly expensive on a 2014-15 price-earnings (P/E) multiple of 11, and a dividend yield of 5%. We are ceasing coverage due to the difficulty in achieving organic growth, high gearing (80% net debt to equity), and ongoing challenges with Sizzler.
Mint Wireless (MNW)
We have previously highlighted the speculative nature of the recommendation, with it operating in a very competitive sector. The problem for Mint is they need to build up enough scale by 2016 before the payments market is opened up to offshore competitors.
Mint’s mobile credit card payments solution has two key partners in Bank of New Zealand and accounting firm MYOB. The company needs to leverage these relationships and increase sales or the share price will remain under pressure. We are ceasing coverage due to the high risk, lack of visibility and long term view that larger tech companies are likely to dominate the space.