Did you miss these 3 Restaurant Stocks on ASX?

Did you miss these 3 Restaurant Stocks on ASX?

Summary

  • The restaurant players have adapted to the changed consumer preferences, adopting online delivery and drive-thru services for sustained operations during COVID-19 crisis. 
  • The ease in restrictions has increased sales in cafes, restaurants, and takeaway services in May 2020 by 30% over April 2020. 
  • Restaurant stocks are to be monitored in near to mid-term amidst growing threat of second wave of infection with recent spike in cases, while e-deliveries and takeaways provide some resilience.

Creating havoc around global economies, novel coronavirus gave a serious blow to Australian economy, crushing the business confidence and consumer sentiments amidst strict lockdowns. While the nation is re-opening in phases in a bid to reboot the economic system, business expansion has been under spotlight.

While some businesses saw minor stumbling, many players operating in hospitality and tourism space saw a significant downfall in their revenues.

Australian retail turnover dwindled by 17.9% in April 2020, a period coinciding with the strict lockdown.

ABS Retail figures indicated a sharp fall in food retailing, cafes, restaurants, and takeaways, along with clothing, footwear, and other accessories. With eased restrictions, Cafes, restaurants, and takeaway food services have risen by around 30% from April to May 2020, yet they remain 30% below from May 2019. 

ALSO READ: Uptick in May retail sales, Retail Players Under Spotlight

Rebooting Restaurant Space

The cafes and restaurants are once again picking up the speed with diners returning. However, social distancing yet remains a concern for many people planning their meals outside in a serene restaurant setting.

The decrease in footfall in shopping centres and malls also seem to affect sales in food courts, affecting many fast food supply chains.

Nevertheless, online delivery and drive-thru services are aiding in bolstering the sales of food related businesses. 

Amidst improving business and economic scenario, a spike in cases in Victoria, however, has risen speculations around the second wave of infection and potential lockdown in the future.

As per the Department of Health on 26 June 2020, Victoria recorded 30 new cases out of 37 cases recorded in Australia. It has again raised the health-related concerns of both customers and authorities. 

ALSO READ: Mapping the Genomic Charter: Victoria on COVID-19 infections & Healthcare Stocks under Watch Zone

Amidst regaining trends strengthening hopes for restaurant and café players, and the growing speculations around resurgence in cases, let us look at few restaurant players. 

Domino’s Pizza Enterprises Limited (ASX: DMP)

Domino’s Pizza observed a significant shift in consumer behaviour across different countries. The company notes European Trade, which is impacted more by seasonal trends compared to Australia and New Zealand in terms of lower sales volume during Summer, is poised to witness the difference in the scenario with restrictions in overseas travelling. 

Domino’s highlighted that it continues to operate a delivery along with carry-out business which is now returning, and the company focusses on retaining delivery growth. While not all the initial changes in ordering behaviour have continued, some new practices such as zero contact delivery can continue for a longer-term.

The company plans on offering alternatives to dine-in restaurants or QSR, while actively taking lessons for new operations. 

Domino’s noted that its unit economics, as well as franchisee engagement have improved, remaining key focus to maintain a hold on the market as economies gear towards the shift.

Although some franchisees have temporarily paused their expansion plans, affecting the timing of store openings and refranchising, the strategy remains unaffected. 

Domino's Pizza in its April Update indicated that COVID-19 has introduced short-term uncertainty, delaying store openings planned for FY20.

By the end of the trading session on 26 June 2020, DMP stock closed at $67.790, offering three months return of 35%. 

Collins Foods Limited (ASX: CKF)

Collins Foods indicated continued improvements in KFC Australia sales from 30 March 2020 to 3 May 2020. Over the period, the same-store sales marginally plunged by 0.9% compared to the previous corresponding period. 

The decline in foot traffic in shopping malls has heavily impacted KFC food courts. At the same time, the remainder of the network traded positively with the same store recording a rise of 4% over the prior period.

The drive-through restaurants predominantly witnessed sales growth. Although current restrictions by the Government have created a negative impact on sales, it is more than offset by the drive-through and home delivery sales. 

Taco Bell, which also registered an initial decline in sales, demonstrated positive recovery as sales in the five weeks ending 3 May 2020 returned to pre-COVID levels. Sizzler Australia also is treading along changing consumer trends with the implementation of takeaway and home delivery services. 

Colins May Update on business performance amidst the pandemic highlighted a strong balance sheet and significant headroom in the company’s current debt facilities and covenants.

CKF stock rose by ~3% on 26 June 2020 to close at $8.290 per share, generating three months return of 50%. 

Retail Food Group Limited (ASX: RFG)

Retail Food recorded an increase in the number of customers within shopping centres with the easing in COVID-19 restrictions by the Government. Meanwhile, as reported by RFG Executive Chairman Peter George, the company is monitoring the recently surging cases in Victoria. 

The Group’s all brand concerning the recent trading data indicated a weighted average decline of 13.76% in the customer count compared to the previous corresponding period.

While the Group is working towards facilitating re-opening of 17 outlets that were temporarily closed, approximately seven stores could see permanent closures. The company maintained that outlet closing was forecasted earlier for closures; the pandemic has accelerated the process. 

Mr George stated in terms of rental relief of franchisees; Retail food group has observed rental relief and concessions concerning approximately 415 outlets. It would provide both franchisees and RFG cash-flow support and additional certainty. Meanwhile, landlords are being negotiated for relief arrangements which may persist during the pandemic and for reasonable recovery period subsequently. 

The company completed the restructuring of its wholesale coffee business with the realisation of cost savings worth of approximately $6 million per annum. Roasting operations are also centralised in its Sydney facility. 

The company, in its trading update, provided FY20 underlying EBITDA guidance of $35 million assuming all its continuing operations contribute full year and excluding AASB15 and AASB16 impact. Net Debt on 30 June 2020 is anticipated to be $25 million.

As on 26 June 2020, RFG stock ended the day’s trading at $0.071, up by 16% intraday. Notably, shares of Retail Food Group by ~97% in the past three mo

 


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