Collins Food (ASX CKF) – KFC Growth Story With Improving Margins
Collins Food (ASX: CKF) is Australia’s largest KFC franchisee and is showing clear signs of an earnings inflection. Same-store sales momentum is building with +3.6% growth in the first 7 weeks of the second half, supported by digital penetration now at 42% of sales and the rollout of kiosks across the entire network by October 2026. The KFC Germany expansion is accelerating with strong unit economics, and the exit from Taco Bell is freeing up capital for higher-return opportunities. At 17x forward earnings versus a 5-year average of 20x, the stock looks undervalued with a 12-month price target of A$12.10 implying 17% upside.
Research published 11 February 2026. Price target and upside based on prices at time of publication.
About Collins Food
Collins Food Ltd (ASX: CKF) is Australia’s largest KFC franchisee, operating approximately 280 KFC restaurants predominantly across Queensland and Western Australia, which together account for around 80% of its domestic network. The company also operates KFC restaurants in Germany and the Netherlands, having expanded into Europe as a growth avenue beyond its mature Australian base. New CEO Xavier Simonet was appointed in October 2025, bringing fresh leadership as the company refocuses its portfolio. Headquartered in Brisbane and listed on the ASX, Collins Food has a market capitalisation of approximately A$1.2 billion and an enterprise value of A$2.0 billion.
Why We Like CKF at Current Levels
Collins Food is in a strong position heading into the second half of FY26. At A$10.34, the stock trades on roughly 17x next-twelve-month earnings, a meaningful discount to its own five-year average P/E of around 20x and below the QSR peer group median. We think this discount is unwarranted given the improving same-store sales trajectory in Australia, a clear path to margin expansion through operational initiatives, and a sensible reallocation of capital toward the higher-returning KFC Germany business.
Our 12-month price target is A$12.10, implying 17% upside from current levels. That target is derived from a 50/50 blend of a DCF valuation at A$12.66 per share (using a WACC of 9.2% and terminal growth rate of 2.0%) and a PE multiple-based approach at A$11.49 (applying 20x to weighted FY26/27 earnings). We think that framework is fair given CKF’s historical trading range and the earnings growth profile ahead.
Same-Store Sales Momentum is Building
The most important near-term signal for Collins Food is the same-store sales growth (SSSg) trajectory in KFC Australia. The first seven weeks of the second half of FY26 have delivered +3.6% SSSg, which sits comfortably above the >3% threshold where margin expansion begins to flow through in a meaningful way.
Several factors are underpinning this momentum and give us confidence it can be sustained:
- Digital penetration has reached 42% of sales, driving higher average order values and improved throughput
- Geographic exposure favours states with stronger consumer spending, with Queensland and Western Australia representing roughly 80% of the Australian network
- New product launches including Kwench (December 2025) and expanded breakfast options (January 2026) are broadening the revenue base
- Day-part expansion into late-night and morning trading windows is opening up incremental sales without meaningful additional fixed cost
When we step back and look at the setup, this is a business generating mid-single-digit SSSg with operating leverage, and the market is pricing it below its historical average. That disconnect is where the opportunity sits.
Operational Improvements Driving Margin Expansion
Beyond the top line, Collins Food is benefiting from a suite of operational initiatives driven by Yum Brands’ technology platform. The Byte and Smart Ops programs have delivered tangible results across the KFC network globally, and Collins Food is a direct beneficiary as one of the system’s largest franchisees.
The numbers from these initiatives are impressive:
- A 75% reduction in aggregator ordering failure rates, directly improving delivery revenue capture
- Up to 10% increase in customer satisfaction scores, supporting repeat visits and brand loyalty
- An 85% reduction in stock-outs, meaning fewer lost sales and better customer experience at the store level
These are not theoretical benefits. They are flowing through to the P&L right now, and when combined with above-3% SSSg, the margin expansion story becomes compelling. KFC Australia EBITDA margins are forecast to improve from 15.0% in FY25 to 19.7% by FY28, which represents a significant step-up in profitability from the existing restaurant base without requiring heavy capital investment.
The kiosk rollout adds another layer. Currently around 85% of Australian stores have kiosks installed, with the target of reaching 100% by October 2026. Kiosks support both higher average transaction values through upselling and labour optimisation as stores can reallocate staff from registers to food preparation during peak periods.
Portfolio Simplification and the Germany Opportunity
One of the clearest strategic shifts under new CEO Xavier Simonet is the rationalisation of the portfolio toward the highest-returning assets. Collins Food is targeting an exit from its Taco Bell operations during 2026, freeing up management bandwidth and capital that can be redirected toward its core KFC franchise.
The standout growth opportunity is KFC Germany. The restaurant economics are strong, with average store revenue of A$4.1 million and an adjusted EBIT margin of 13.4%. For context, KFC Netherlands operates at just 6.7% EBIT margin, making Germany a far more attractive use of expansion capital. Collins Food holds a Corporate Franchise Agreement with Yum Brands in Germany and is targeting 56 stores by FY30, up from 22 currently, with guidance for 40 to 70 new stores over the medium term.
Germany is a large, underserved market for KFC relative to other major European countries, and Collins Food’s early-mover advantage as a well-capitalised franchisee gives it a genuine runway for growth. The capital allocation decision to lean into Germany while scaling back Netherlands and exiting Taco Bell is exactly the kind of disciplined prioritisation we want to see from management.
Financials and Earnings Outlook
The financial profile over the forecast period tells a story of a business transitioning from a difficult FY25 into a much stronger earnings trajectory:
- Revenue grows from A$1,519m in FY25 to A$1,746m in FY28, driven by SSSg and new store openings in Germany
- EBITDA improves from A$209m to A$283m over the same period, with margins expanding from 13.8% to 16.2%
- NPAT recovers sharply from A$8.8m in FY25 to A$57.2m in FY26 and continues to grow to A$76.1m by FY28
- EPS moves from A$0.07 in FY25 to A$0.48 in FY26 and A$0.65 in FY28
- The dividend yield builds from 2.6% in FY26 to 3.1% in FY28 as earnings grow
- Net debt improves from A$138.1m to A$102.0m by FY28, reflecting strong free cash flow generation
The NPAT growth forecast of roughly 19% in FY26 sits at the top end of the company’s mid-to-high teen guidance range. Free cash flow remains healthy at over A$112m in FY26, comfortably funding the dividend, debt reduction and the German expansion pipeline. This is a business generating cash well in excess of its maintenance requirements, which gives management flexibility without needing to stretch the balance sheet.
Valuation
At 17x next-twelve-month earnings, Collins Food is trading at a material discount to both its own history and the broader QSR peer group. The five-year average NTM PE is approximately 20x, and QSR peers trade at a median around the same level. We think the stock has been de-rated post the weak FY25 result and the uncertainty around European operations and Taco Bell, but the operational improvements and strategic clarity now emerging should support a re-rating back toward historical levels.
Research from Goldman Sachs supports a Buy rating with a A$12.10 price target using a blended valuation approach. We agree with that framework and think the risk-reward is skewed to the upside at current levels. The combination of accelerating SSSg in Australia, margin expansion from operational initiatives, and a focused European growth strategy in Germany should drive earnings upgrades through FY27 and FY28 that the market has not yet fully priced in.
On the M&A front, we see low probability of Collins Food being acquired at this stage, and we do not factor any takeover premium into our valuation.
Key Risks
The most significant risk for Collins Food is the franchise relationship with Yum Brands. As a franchisee, CKF is ultimately dependent on the franchisor for brand direction, product innovation, and territory rights. Any adverse change to franchise terms or territorial agreements would have a direct impact on the business.
Consumer spending weakness is the second key risk. While QLD and WA have been relatively resilient, a broader economic downturn could weigh on discretionary food spending and compress SSSg below the 3% threshold needed for meaningful margin expansion. The KFC brand does benefit from being positioned toward the value end of the dining spectrum, which provides some natural buffer, but it is not immune to macro pressures.
Execution risk in KFC Germany deserves attention. Expanding from 22 to 56 stores by FY30 requires consistent site selection, build-out and ramp-up in a market where Collins Food is still establishing its operational footprint. Foreign exchange exposure on European operations adds another layer of variability to reported earnings.
Our View
Collins Food offers a straightforward investment case at current levels. The Australian KFC business is performing well, with SSSg building momentum through digital initiatives, new products and day-part expansion. Operational improvements from Yum’s technology platforms are translating directly into margin improvement. The strategic pivot toward Germany and away from lower-returning assets like Taco Bell and Netherlands shows a management team making sensible capital allocation decisions. At 17x forward earnings against a 20x historical average, with NPAT growth of nearly 20% forecast for FY26 and a clear path to continued earnings expansion through FY28, we think the stock is undervalued and see a credible path to A$12.10 over the next 12 months.
If you would like to discuss Collins Food or how it might fit within your portfolio, request a callback or call us on 1300 889 603.
