Looking ahead into the new financial year, we don’t claim to know exactly how the recovery will unfold, and we expect elevated volatility to continue. That said, we believe this is an exciting time for active stock pickers who can identify companies with financial strength and management teams that have shown an ability to navigate through challenging environments.

In the restaurant industry, for example, Collins Food, with approximately 240 KFC restaurants (as the franchisee) throughout Australia, was fortuitous enough to have embarked on a plan to improve its drive through services over the last two years. Just as fortuitous, Collins Food had also began to rapidly utilise the services of aggregators for home deliveries over the 18 months prior to COVID19, as the economics from the incremental sales generated proved to be attractive.

Over the past few months, under movement restrictions, we observed that on a relative basis, COVID-19 has favoured fast-food concepts such as McDonalds and KFC. Fewer dining out alternatives was one clear reason but customers were also spending longer dwell times online thereby accelerating food ordering trends towards the online channel.

Seizing the new business opportunity, Collins Food’s management pivoted toward take-away channels such as drive-through and delivery, accelerating customer shifts into those channels and recapturing lost sales from the dine-in options. Success was evident in the numbers. For the six months to June 2020, Collins Food’s KFC sales in Australia grew 2.3% compared to the same period year, or in other words, sales barely registered a slowdown—despite the significant disruptions experienced over the past six months.

During a time of extreme adversity, the company rose to the challenge and has managed to grow its business profitably.

Collins Food represented 2.2% of Prime Value Opportunities Fund’s and 3.6% of Prime Value Emerging Opportunities Fund’s assets as of 30 June 20.

– By ST Wong, 14 July 2020 

 

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