Collins Foods: Margin Pressure Dragging Out, but We Still See Recovery on the Horizon

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe and the nascent roll out of Taco Bell stores in Australia, we expect Collins' Australian KFC network will continue to drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with over 280 restaurants out of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.