Should You Buy Retail Food Group?

Richard Hemming


When we first looked at Retail Food Group (RFG) a couple of years ago, the stock price had declined 90% from a year previously. The company was facing a crisis of confidence and debt repayment triggered by revelations that its franchisees were not making money while the company was getting away with charging too much for coffee and supplies. 

Should you buy RFG?
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We revisited the situation as the share price declined and new management started to come to grips with the scale of the problem. Back then we still found little value, concluding fairly quickly that the company would require emergency refinancing leaving little value in the ordinary shares.

Is RFG a recovery growth stock?

Reviewing our analysis at the time, when some of our subscribers were interested in RFG as a possible recovery stock, we were right to identify that this company's troubles were even worse than appeared on the surface. 

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Why did RFG share price drop?

We also correctly pointed out that the banks would take lots of steps to ensure that they did not have to sort out this mess on their own.  This was confirmed in a remarkably generous $72m write-off of the debt outstanding (27% of the total) which executive chairman, turnaround specialist Peter George, noted was most favourable.  At the same time, the company was recapitalised in an enormous issue of about 7 times the number of shares at a price 98% below its peak a couple of years previously. RFG issued 1.7bn additional shares at 10 cents each, together with another 200m in a SPP at the same price.

What's happened now? 

Then came COVID-19, lockdowns and shopping centre closures. And now a new bombshell! Though not completely new. The ACCC is seeking declarations, injunctions, pecuniary penalties, disclosure and adverse publicity orders, a compliance program order, non-party redress orders and costs in relation to contraventions of Australian Consumer Law and the Franchising Code of Conduct in relation to the sale or licence of 42 corporate-owned stores as well as the management of marketing funds. 

Should I buy RFG?

In tomorrow’s report we run the ruler over the RFG numbers to decide whether this is truly a tale of salvation for the troubled group. The good thing about investing is that you can take advantage of the pain worn by others. City Chic (CCX) was a classic example.

Find out if we rate RFG as a Buy, Hold or Sell and join today and get bonus 2 months free as part of our Christmas Special! 

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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