05 July 2014

Summary company financials (A$m)

Year end April FY2012 FY2013 FY2014 FY2015E
Price A$2.04 Revenue 406.0 423.9 440.6 551.5
Market cap (A$m) 190.4 -0.6% 4.4% 3.9% 25.2%
Enterprise value 317.8 EBITDA 37.3 46.4 50.5 68.7
9.2% 10.9% 11.5% 12.5%
Free float 79.6% Net income 11.4 16.4 16.5 27.6
Net debt (cash) 85.3 82.2 127.4 120.0
Shares outstanding 93.0 93.0 93.3 93.3
EV/Sales 0.47 0.59 0.72 0.56
EV/EBITDA 5.1 5.4 6.3 4.5
PE 9.1 10.4 11.5 6.9
Collins Foods Limited
Revenue growth
EBITDA margin
Collins Foods Ltd is Australia's largest operator of KFC franchises with 168 leasehold outlets concentrated in the growing and more highly
populated regions of Queensland and Western Australia. Collins Foods derives 83% of revenue and 87% of operating profit from its KFC
activities; the remainder is derived from 83 leasehold and lower margin "Sizzlers" outlets, half of which are in directly operated in Australia,
and half of which are franchised to other operators in Thailand, Japan and China. Collins Food was listed on the Australian Stock Exchange in
2011.

The opportunity to invest in Collins Foods at attractive levels has occured as the company's recovery from a period of weaker trading has only
been partially priced in, combined with synergies likely from an accretive all-cash acquisition by the company in March 2014 of 42 additional
KFC outlets. Assuming stable top line trading, and 100 basis points of margin improvement from the disclosed 200 basis points of acquisition
synergies, Collins Foods trades at 4.5x EBITDA to April 2015 and 6.9x PE. The 12.5% EBITDA margin assumed in this forecast does not appear
unreasonable - even without the merger synergies Collins Foods achieved a 13.3% EBITDA margin in 2009 and a 12.8% margin in 2010.

KFC's owner - Yum Brands - franchises over 600 stores in Australia, suggesting Collins Foods' overall share is around 28%. However, Collins
Foods' KFC outlets, concentrated in Queensland and Western Australia, operate with virually no competition from other KFC franchisees local
to those regions. The KFC brand in Australia has strong awareness, according to a 2011 study by BIS Shrapnel. Members of the public were
asked which brands came to mind when thinking about fast food chains. KFC's score, at 69/100, was beaten only by McDonalds, which scored
83/100. Chains such as Subway scored 45/100, and Domino's Pizza, 20/100.

Collins Foods' CEO Kevin Perkins, who owns 7.5% of the company's shares, has a reasonable track record in overseeing the KFC outlets. Under
Perkins, the KFC outlets have achieved 5.9% like-for-like sales growth over the last 10 years. KFC overall also appears to have encouraging
trading in Australia. In the year to March 2014, KFC's Australian fast foods market share went from 10.6% to 11.9%. This is in contrast to fast
food market leader McDonalds, whose share declined from 31.8% to 28.7%, and Subway, which lost share from 14.1% to 13.1%. KFC's
Australian franchisees, such as Collins Foods, pay KFC owner Yum Brands an annual fee of 6% of revenues, as well as being required to invest
5-6% of revenues in advertising and promotion.

In additional to the KFC franchises, Collins Foods owns, operates and franchises a chain of "Sizzler" fast food restaurants. The Sizzler
operations generate 17% of Collins Foods' revenues and 13% of its operating profit. The Sizzler format is a pay first, unlimited self service
model that allows customers to select, order and pay for their meals before being seated at a table. This model reduces costs by requiring
fewer staff, and increases revenues through higher average table turns, than if Sizzler operated as a traditional table service restaurant.
Whilst Sizzler's like-for-like sales have averaged more than 5% since 2002, the chain has in the year to April 2014 seen declining like-for-like
sales at -5.6% and is an area of current management focus. However, Sizzler remains profitable with an 10.1% underlying EBITDA margin to
April 2014 (an increase on the 9.6% EBITDA margin achieved in FY2013).

March 2014 saw Collins Foods acquire 42 additional leasehold KFC outlets in Western Australia from Jack Cowin, the founder of competitor
fast food chain - "Hungry Jacks". Cowin was in dispute with KFC owner Yum Brands - according to local media - Yum was refusing to renew his
KFC franchise license. Cowin may, therefore, to some extent have been a "forced seller" of the KFC outlets, which he sold to Colllins Foods for
A$55.6m, or 0.51x EV/Sales. The cash funded deal was immediately accretive to Collins Foods, and the company has guided 200 basis points
of merger synergies as centralised costs are rationalised and buying power increases.

Following a period of weaker trading after Collins Foods' 2011 listing, another Australian KFC-linked entrepreneur, Stephen Copulous, has
bought shares in Collins Foods and is now its second largest shareholder (after Orbis Investment Management) with a 12.9% stake. Copulous
sits on the board of Collins Foods and also independently operates a chain of KFC franchises in Australia, as well as overseeing several other
holdings in publically listed equities, including a stake in Liquefied Natural Gas Ltd - also listed on the Australian Exchange.

In summary, Collins Foods is Australia's largest operator of KFC franchises with dominant market positions in the Queensland and Western
Australia regions. The company has a reasonable track record in operating KFC franchises with average like-for-like growth of 5.9% over a 10
year period. KFC itself is a well recognised brand in Australia, second in customer awareness to McDonalds. Collins Foods has recently
acquired 42 additional KFC franchises in an attractively priced deal which management have guided will offer 200 basis points of synergies.
Assuming 100 basis points of synergies are achieved in the year to April 2015, Collins Foods trades a next twelve month rating of 4.5x EBITDA
and 6.9x PE. A businessman - Stephen Copulous - separately owning other KFC-franchises in Australia has acquired a 12.9% stake in Collins
Foods and now sits on its board. Whilst the intentions of Copulous are unclear, it would not be illogical for him or another activist investor to
encourage the sale of Collins Foods' underperforming Sizzlers sites, in order that the group can focus on its core KFC activities.