Why is the Collins Foods (ASX:CKF) share price climbing 5% today?

A young boy points and smiles as he eats fried chicken.

The Collins Foods Ltd (ASX: CKF) share price is lifting during morning trade on Thursday. This comes after the KFC restaurant operator provided investors with a positive update in regards to a corporate franchise agreement.

At the time of writing, Collins Foods shares are up 5.59% to $12.65.

Collins Foods expands KFC network

According to today’s statement, Collins Foods’ Netherlands business has signed an agreement with KFC Europe, a division of Yum! Brands Inc.

Under the corporate franchise agreement, Collins Foods will become KFC’s corporate franchisee in the Netherlands. This means Collins Foods has the rights to develop, manage, market, support, and operate the KFC business in the country.

The agreement provides a framework for the development of up to 130 new KFC restaurants over a 10-year period. These stores will be a mix of independent franchisees and company-owned restaurants.

The corporate franchise agreement will supersede the current Netherlands development agreement that is currently in place.

In the new deal, Collins Foods will receive a fee from KFC towards the costs of running the market. Extra incentives have also been added by KFC Europe through meeting various objectives relating to development and other performance measures.

The agreement will run over a 5-year period and come into effect on 31 December 2021, pending approval of conditions.

Managing director and CEO Drew O’Malley commented on the deal possibly driving the Collins Foods share price:

Today’s announcement marks a true milestone in the progression of Collins Foods’ strategy in Europe. The corporate franchise agreement in the Netherlands is an exciting opportunity that allows us to more fully leverage our scale, experience, and operational capabilities in Europe for the benefit of both the company and the KFC brand.

We believe there is substantial opportunity for restaurant growth in the Netherlands, given KFC’s low penetration rate relative to developed markets and other Quick Service Restaurant brands. Further, our current management team for Europe has an excellent track record in the QSR sector and with KFC, and this is a natural extension for them and our business.

About the Collins Foods share price

Over the past 12 months, the Collins Foods share price has travelled higher to post an almost 20% gain for the period. In 2021 its shares are up around 30%.

Collins Foods presides a market capitalisation of roughly $1.45 billion, with approximately 116.7 million shares on issue.

The post Why is the Collins Foods (ASX:CKF) share price climbing 5% today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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