Franchise food group Collins Food to deliver largest IPO so far this year

Cautious times appeared to have boosted the expansion plans of Collins Foods Group, with the operator of 145 KFC and Sizzler stores expected to deliver this year’s largest float next month.

The initial public offering was yesterday priced at $2.50 per share or nine times earnings. Collins, valued at $233 million, is expected to make its market debut on August 4.

Priced at the lower end of the purported $2.50 to $2.92 range, the sale is 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 round out the mix.

Colin McLeod, executive director of the Australian Centre for Retail Studies, says takeaway food is an area that’s held up pretty well and will likely continue to do well.

“And our research suggests that’s because people are really busy,” McLeod says.

“People are working longer hours, especially white-collar workers, because they want to hold onto their jobs, so they get takeaway.”

McLeod says in difficult household financial times businesses such as Bunnings and Autobarn tend to do well because people are time stretched and more likely to do it themselves to avoid labour costs.

A share market listing would likely provide a fillip to Australia’s IPO performance this year, with volatility prompting many vendors to opt for trade sales rather than floats.

Queensland-based Collins operates 119 KFC outlets and 26 Sizzler restaurants nationwide. The first KFC store was opened in Brisbane in 1969 and the first Sizzler followed in 1985.

Pacific Equity Partners, which bought into the business six years ago, is selling out in the float, but management is expected to retain 9%, with CEO Kevin Perkins keeping 7.5%.

McLeod said this model might boost its attractiveness as an investment because it shows there is skin in the game.

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. 

Collins Foods Group’s 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.