On Wednesday, UBS analyst upgraded shares of Collins Foods Ltd. (CKF:AU) (OTC: CLLFF) from Neutral to Buy, adjusting the price target to AUD11.50 from AUD10.95. He cited a resilient performance by the company, noting that the results were significantly better than market expectations despite a challenging consumer environment.
The upgrade comes after Collins Foods reported a slight 0.8% dip in like-for-like sales (LFLs) in the first seven weeks of the year. However, UBS anticipates a potential turnaround, projecting positive LFLs in the second half of 2025, with an estimated increase of 1.8%. UBS analyst highlighted several factors that could contribute to the company's growth, including strong market positions in Western Australia and Queensland, the potential for market share gains through competitive pricing, and an expansion strategy that includes organic growth and mergers and acquisitions.
The UBS analyst also pointed out that Collins Foods could benefit from consumer trade-down during economic downturns. Additionally, a UBS Evidence Lab Consumer survey indicated that consumer spending intentions in the quick service restaurant (QSR) sector could improve over the next 12 months.
In terms of valuation, he suggested that Collins Foods is attractively priced compared to its peers. The company's forecasted FY25 enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple is 8.1 times, which implies a two-year EBITDA compound annual growth rate (CAGR) of 13%. This stands in contrast to international peers trading at an average multiple of 11.4 times and a 10% CAGR, as well as GYG's FY25 EV/EBITDA multiple of 48 times with an EBITDA growth of 39%.
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