poor old collins food in aus ( kfc) has been savaged by the announcement that all its stores in denmark have to close due to the virus
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poor old collins food in aus ( kfc) has been savaged by the announcement that all its stores in denmark have to close due to the virus
From a recent high in December 2019 of $10.50 for Collins Foods (CKF), and trading at $4.60 as I write this. A fall of 56%. Ouch!
Mind you, RBD touched $14 in January and is now trading at $8.20. A fall of 41%. Not that much better. Frankly I think the RBD share price deserved to fall from what I saw as ridiculous multiples. But the only silver lining here is that it makes me feel a little better about quitting most of my holding at $9.50 in the partial takeover! Hopefully none of RBD's restaurants will 'do a Denmark'. But even if they do, the KFCs all have 'drive throughs' and more and more stores are doing home deliveries. So I am reasonably comfortable with my residual RBD holding.
SNOOPY
RBD looks to be a buy, Additional Taco Bell stores planned for NZ and AU and KFC deliveries in NZ for Q3 post Covid19 scare could be a potential launching platform. Watch Q2 closely to time a buy as I don't see it falling in Q3 onwards.
Some free advertising for RBD
Their quarterly earnings will be. But beyond that, there is likely to be little downside going forward. If you do a DCF analysis and with the discount rate now being lower (almost zero) the impact of this quarter will pretty well be negated. But the risk going forward is that sales do not return to prior levels as distancing and other laws will make it harder for their restaurants to open as before. But I am sure that technology will probably get around that problem.
To be fair though I thought they were a bit pricy just on the metrics pre-covid, so will probably not be buying at these levels.
When deriving a 'discount rate', it is common for analysts to use something called the 'Capital Asset Pricing Model'. This uses input figures based on the general economic environment and specific factors related to the particular share you wish to analyse. One such factor is historical 'specific share price volatility' verses 'overall market volatility'. Personally I do not use this method. I prefer to assign an 'industry sector group volatility' figure regardless of any share specific historical volatility.
I tend to use a lower discount factor for any share which supplies basic human needs, like utilities and food companies. One potential flaw in my method has been highlighted by you below blackcap.
If the business model changes, it could me that my 'assigned discount value' to a particular sector is no longer appropriate. But you can say the same thing about the CAPM, where the input factor of 'historical share price volatility' is likely to be largely unrepresentative in the future too.
I have made a change in my method over the last year or so, lowering my 'industry discount factor' to take into account global interest rates that looked to be keeping lower for longer. The COVID-19 environment makes it likely that interest rates will be even lower for longer. The problem I have with adjusting my 'industry discount rate' again is that eventually discount rates get so low that summing the benefits of future profits can justify almost any share price. By all conventional measuring sticks, the price of RBD shares today is ridiculous, in my view. Yet the more this 'new normal' view on interest rates (and hence discount rates) prevails the more the price of RBD shares today seems 'reasonable'.
I absolutely agree. The longer these super low interest rates continue I can see the seeds being sown of the next market disaster. This being a tiny rise in interest rates from say a risk free rate of 0.5% to just 1% that could see the market fall by 50%. For this reason I cannot bring myself to buy any new shares based on the premise of super low discount rates, RBD included. Yet I can't bring myself to sell my residual RBD post takeover holding, even though I know it is too highly priced. Irrational? Probably yes.
SNOOPY
Surely Collins Foods on ASX represents far better value?
You could be right Dark Horse
Collins Food @ $A6.28 => PE of 19.4
YUM Brands @ $US85.89 => PE of 20.8
YUM China @ $US43.95 => PE of 23.7
Restaurant Brands @ $NZ11.60 => PE of 40.9
In saying that, RBD has the overseas expansion plans that CKF does not. Yet being the master franchise holder YUM Brands looks the most attractive of the four to me right now.
SNOOPY
discl: hold YUM, YUMC, RBD
Hi Snoopy, yes I know all about the CAPM and WACC. Studied it ad nauseum back in the 90's. And yes you highlight the big drawback or weakness of the CAPM. The very fact that is uses backward looking data to derive future valuation. But out of a bad bunch it is not the worst model out there. Now that we have excel it is so much easier to do DCF simulations and models. O the days at uni where it was all done on paper.. you certainly learnt how to use a calculator that's for sure.
Sorry for the dumb question, but can anyone tell me what percentage of the RBD stores restaurant brands also owns the buildings/land? Are they mostly leased?
No real thoughts, if you are going to use bottom up betas instead of regression you also have the subjective part in your model. You are damned if you do and damned if you don't. Bit of hocus pocus all round. But thats ok, thats what makes analysis and finance so fascinating and why so many people have different views on value.
Seems that KFC brings out the feral in us:
https://www.nzherald.co.nz/business/...ectid=12328367
KFC had to close early as ran-out-of-chicken and McDonalds ran out of hamburgers ............
So I went to my local to take advantage of the free meal voucher I received yesterday. Interestingly enough, there were signs saying contactless payments only. But no worries, the card was accepted. Also really interesting was that the 3 staff all milling within centimetres of each other that I could see were not wearing any PPE whatsoever. Did not bother me, but you would think from a perception perspective this is not a good look?