Growth Focus: Collins Foods Ltd (CKF)

by Patrick Taylor



Date of Data Capture: 22/2/2019
Name: COLLINS FOODS LTD (CKF)
Classification: Restaurant Management
Current Price: $6.52
Market Capitalisation: $760M
Forecast EBITDA Growth: 18.52%
Yield Estimate: 2.94%
Consensus Price Target: $7.47
# Covering Analysts: 5
Discount at Current Price: 14.57%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Weekly-Daily
TrendBias: Up-Flat / Long-Medium

Indicators:
Short-term: Positive
Medium-term: Positive
Long-term: Positive-Neutral

Recommendation: Buy
 
Focus: (Dividend Income &) Capital Growth
 
Set up Notes:
·    CKF has been in major uptrend since 2012, cycling higher through rallies and dips - we are looking to take advantage of the most recent pullback by following fresh positive signalling here as price bounces off new major support.
·    Strong sales growth has been a key driver of performance and we expect that to continue with excellent forecasts for expanding earnings, revenue and net margins out to 2021.
·    Pricing is showing important strength here after breaking above linear resistance in late-2018, leading to a steep short-term rally, followed by a successful retest of support this month, offering an attractive entry opportunity right now.
Support ($): 6.50, 6.00, 5.50 & 5.00.
Resistance ($): 7.00 & 7.50 (then clear).

Growth Focus:COLLINS FOODS LTD (CKF)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

Investors can be well-served by paying attention to companies having minor pullbacks within major rallies, as these moments tend to offer up discounted opportunities for entry. We are doing exactly that with Collins Foods Ltd, as the share price moves out of short-term consolidation, showing good signs of recovery within a greater long-term uptrend, driven by strong performance and appetising forecasts.
Restaurant Manager CKF operate stores of well-known brands like KFC, Sizzler and Taco Bell, throughout Australia, Europe and Asia. The company has been gaining steadily by both organic expansion and active acquisition strategy, with earnings growth being broadly spread across brand and region. Key markets for future growth lie in expanding markets like KFC Europe, Sizzler Asia, as well as the roll-out of the Taco Bell chain in Australia this year.
Collins Foods have shown an excellent track record of strong performance since listing in 2011, and we expect future growth will continue to lead pricing higher with further gains forecast for sales, revenue and earnings out to 2021. This favourable outlook is supported by expected steady margins and lower leverage, with a majority positive analyst consensus that presently offers a 15% discount to current pricing, with targets rising aggressively and up 19% in the last six months.
Despite having a strong longer-term history (with prices almost tripling in the 8 years since floating on the ASX) CKF has periodic, but significant pullbacks that have offered great buying opportunities. After a strong period between late-2012 and early-2017, where pricing rallied almost 650%, the stock entered into a price consolidation for most of 2017 and 2018, eventually pulling prices down by 25% by the start of 2019.
During this time, pricing had been moving slowly lower, working through medium-term cycles, until breaking above linear support 6 months ago, with early strength leading into a sharp rally. This shorter-term uptrend eventually ran out of steam and pricing pulled back to test the breakout zone and successfully bounce off new support level of $6.00 last month before firming up and beginning to push higher in the last few weeks as fresh positive momentum signalling emerged across multiple key timeframes.
With the price now breaking out of this latest minor pullback we are following this new positive momentum, backed by excellent performance and forecasting for an attractive set up that has us thinking that CKF will keep on delivering.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.