After diving 8% in debut trade yesterday, Collins Food shares were down a further 8.7% this morning to $2.10 – 40 cents off its offering price last month. Shares were offered at $2.50 each, or nine times earnings.
The market has had a shocking couple of days, losing 2% yesterday, and down a further 4% this morning, so Collins in not the only company registering high single-digit losses.
Collins bucked the trend this year by floating, with investors attracted by fast-food's defensive qualities during uncertain economic times and the 9% stake retained by management and CEO Kevin Perkins keeping 7.5%.
Private Equity Partners, which bought into the business six years ago, sold a 52% stake in the business.
The sale was said to have attracted a mixed register, with retail investors accounting for 25%. Small and mid-cap institutions and offshore investors from Asia and New Zealand are believed to have rounded out the mix.
A recent report into fast food in Australia by BIS Shrapnel said there had been steady growth in fast food outlets across Australia, making it a competitive market offering consumers a wide range of different fast food options.
"Currently there are about 17 major fast food chains operating in Australia, accounting for almost 5,500 outlets while 80 minor chains account for another 1,000 outlets," the report says.
"The number of snack food chain outlets has almost trebled over the past decade to 1,500 while the independent fast food outlets total almost 9,000," it said.
"During the economic downturn Australians continued to eat out, however they traded down in their outlet choice, making fast food chains one of the winners among the different types of food service outlets."
"Although hamburgers increased in popularity among consumers in 2009/10 and hot chips remain one of the most popular options, the fast food market and consumer preferences are shifting towards new and emerging alternatives."
Collins is based in Queensland and is a franchisee of 119 KFC outlets and owner of 26 Sizzler restaurants in Australia, plus dozens more in Asia. The first KFC store was opened in Brisbane in 1969 and the first Sizzler followed in 1985. It has about 700 full-time employees and 5,000 casual and part-time employees.
KFC is believed to account for 74% of Collins Foods Group's sales, which are tipped to grow to $430 million in the 2012 fiscal year.
Earnings before interest, taxation, depreciation and amortisation are forecast to rise by 5.5% in 2012 to $59 million, with net profit rising 8% to $24.7 million.
Collins Foods' rival, Quick Service Restaurants Holdings, which owns Red Rooster, Oporto and Chicken Treat, was sold by Quadrant Private Equity earlier this year to Archer Capital for an estimated $450 million. Quadrant said the certainty of a sale was more attractive than a float.
Another listed franchise group is Retail Food Group, which has more than 1,100 franchise outlets, including Michel's Patisserie, Donut King, Brumby's and bb's café.
Another report by IBIS World into fast food in Australia this April found the fast food industry had "undergone a health kick over the past five years."
"Driving the shift towards healthy eating has been the rapid increase in consumer awareness about the nutritional content of fast food, a conscious effort by consumers to eat a balanced diet and an influx of healthy options by the industry's heavyweights," IBISWorld said.
"Combined, these factors are estimated to lead to a 4.3% per annum rise in industry revenue over the five years through 2010-11. Growth, however, was not easy, with intense competition within the industry negatively affecting sales and profit."
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