Collins Foods shares rise on Goldman Sachs 'buy' rating
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The news: Shares in Collins Foods, the operator of KFC and Taco Bell restaurants in Australia, gained in morning trade on the ASX after Goldman Sachs initiated coverage on the stock with a 'buy' rating.
The numbers: Collins shares rose 1.6% to $8.74 by 11:20am AEST, having lost over 25% since January.
Goldman Sachs set the company's 12-month price target at $10. Citing different growth expectations for KFC Europe and Taco Bell, Goldman Sachs set its NPAT forecasts 3% to 4% below Visible Alpha consensus over the next three financial years.
The context: Goldman Sachs analysts attributed Collins' recent margin downgrades to "the rising cost and tough consumer environment" that has impacted many of its peers.
However, they see the company's outlook to be "incrementally more positive". The analysts forecast improved discretionary spending in Collins' key states of Queensland and Western Australia, and anticipate a moderation of key costs, with wages, poultry, electricity and rent growth all moderating.
The analysts noted Collins' potential for increased digital sales penetration as kiosks are more aggressively rolled out. They also flagged Netherlands KFC presence reaching long-term scale and improved margins and potential for incremental corporate franchise agreements and/or mergers and acquisitions in Europe.
The source: Goldman Sachs research
