RFG - Retail Food Group

[Dreadweave]

Thought I'd start a thread because I couldn't find one on RFG. I hold at 2.59 and haven't seen much action in the past month, They have seen some good growth in the past 6 months so maybe I have missed the action.

I picked this one up on advice from the Australian Stock report back in September when I was on a trail with them.

Anyone else hold? Or perhaps some chartists could enlighten me with some kind of chart analysis of this stock? I would be really interested.


Description
Retail Food Group Limited is engaged in the intellectual property ownership of the Donut King, bb’s cafe, Brumby’s Bakeries and Michel’s Patisserie franchise systems; development and management of the Donut King, bb’s cafe, Brumby’s Bakeries and Michel’s Patisserie retail franchise systems throughout Australia and New Zealand, and the wholesale supply of certain products to the Donut King, bb’s cafe, Brumby’s Bakeries and Michel’s Patisserie franchise systems. It operates in two segments: franchising operations and wholesale/retail operations. Franchising operations incorporates the development and management of the four retail franchise systems: Donut King, bb’s cafe, Brumby’s Bakeries and Michel’s Patisserie. Wholesale/retail operations comprise the procurement, sale and distribution of bakery and other related items to Michel’s Patisserie franchisees. On June 1, 2009, the Company acquired Caffe Coffee Pty Ltd. On January 12, 2009, it disposed the Central Manufacturing Facility.

 

[Dreadweave]

Forgot to update, I sold out of RFG 26/10/09 @ $2.72 for a 4.25 % profit after brokerage.

The price has since dropped to 2.48 so Im looking to buy again early next week if it dont open too high.

 

[Wysiwyg]

Retail Food Group is posting increased dividends year on year. Does this mean the share price will decline over the longer term. In other words is there a ceiling on share price when dividends increase year on year? No point in buying/holding shares for dividend when the price has no further upside or is at an intermediate or longer term peak right?

 

[So_Cynical]

Retail Food Group is posting increased dividends year on year. Does this mean the share price will decline over the longer term. In other words is there a ceiling on share price when dividends increase year on year? No point in buying/holding shares for dividend when the price has no further upside or is at an intermediate or longer term peak right?

Increasing year on year dividends would indicate a rising year on year share price...wouldn't it? ~ the REIT's and infrastructure stocks have flat yoy distribution yields and mostly share prices that are range bound...mostly, although there's the occasional leg up or down on whatever news or sentiment...like ENV, CIF and DXS lately.

 

[ROE]

Retail Food Group is posting increased dividends year on year. Does this mean the share price will decline over the longer term. In other words is there a ceiling on share price when dividends increase year on year? No point in buying/holding shares for dividend when the price has no further upside or is at an intermediate or longer term peak right?

You got a bit of learning to do then...

The key ratio is earning and payout ratio ... company can increase dividend payout because they earning more and more each year ..

company A earns 50c this year pay out ratio 50% = 25c
company A earns 70c next year pay out ratio 50% = 35c

Better disclose I start buying in Jun on RFG and haven't finished buying ..a rising star in my book

 

[Wysiwyg]

Increasing year on year dividends would indicate a rising year on year share price...wouldn't it?

CBA is at the same price it was 4 1/2 years ago so I would say not.

 

[Wysiwyg]

You got a bit of learning to do then...

The key ratio is earning and payout ratio ... company can increase dividend payout because they earning more and more each year ..

company A earns 50c this year pay out ratio 50% = 25c
company A earns 70c next year pay out ratio 50% = 35c

Better disclose I start buying in Jun on RFG and haven't finished buying ..a rising star in my book

Yeah ROE I can't wrap my head around buying and holding for dividend if the share price has no further upside. Management are not bludgers with acquisition plans and expansion of franchises overseas. Looks good then.

Thanks for your view.

 

[So_Cynical]

CBA is at the same price it was 4 1/2 years ago so I would say not.

There are anomaly's...what's the current outlook for CBA (the banks) any negative sentiments there, housing prices, lower loan approval rates, banking inquiry, rating agency warnings, dependence on foreign capital availability and costs.

The RFG SP has come under the influence of the failed takeover and thus investor uncertainty over the management direction...if you can look past the Oaks thing RFG is a bargain.

Yeah ROE I can't wrap my head around buying and holding for dividend if the share price has no further upside. Management are not bludgers with acquisition plans and expansion of franchises overseas. Looks good then.

Thanks for your view.

I think there is lots of scope for the SP to go up over time, lots of scope to add another franchise line or grow the business over seas...also scope for a takeover, the foreign venture capital funds love these sorts of businesses.

 

[ROE]

Yeah ROE I can't wrap my head around buying and holding for dividend if the share price has no further upside. Management are not bludgers with acquisition plans and expansion of franchises overseas. Looks good then.

Thanks for your view.

it's hard to predict price movement of a share price, and there are always some risk when buying stocks so I'm not too hang up on it.

What I look for is room for expansion, room for earning increase and room to increase dividend payout and trades at a price I'm willing to pay

the rest I let the market sort itself out over 5-10 years period.

 

[danbradster]

it's hard to predict price movement of a share price, and there are always some risk when buying stocks so I'm not too hang up on it.

What I look for is room for expansion, room for earning increase and room to increase dividend payout and trades at a price I'm willing to pay

the rest I let the market sort itself out over 5-10 years period.

After seeing a presentation by Lincoln Intellegent MArket Solutions, I will apply their 8 golden rules to RFG. I have not yet applied these rules to RFG, but it is currently one of my favourite shares.

1. Financial Health
Cash Flow (operating activities): ~$13m per half
Borrowings Repayments: Paying off ~$5m per half
Dividends: ~$6m per half
Debt: $67.7m debt and falling. Gearing 31.1%.
Overall they have strong cashflow and any excess cash is split between investments, paying off debt and dividends. Good.

2. Management Assessment
ROA: Google Finance shows this as 11% for 2010.
EPS: 8.6c in FY06, 25.5c in FY10, 1H11 was a record EPS. Google Finance shows this as 21% for 2010.
Both seems strong.

3. Share Price Value
Commsec shows a PE of 9.2 versus a sector average of 12.8 PE.
The broker target from before the OAK bid was $3.45.
The broker target after the OAK bid is $2.60.
Since the OAK bid is cancelled I will consider the original target.
The current SP of $2.43 is below the target of $3.45. The target is 42% above the current SP.

4. Liquidity
The spread is $2.35 BUY order, $2.43 SELL offer. A fairly big spread.
The daily volume is low, less than 20,000 shares traded on an average day.
Lincoln would recommend a holding of $10,000 or less based on the volume alone (20% of the daily turnover). Mine is quite above $10k though.

5. Share Price Trend
A good 5 year trend, a bad 1 year trend.
To me though, the SP movement from the OAK bid was not a trend but a one time movement. Ignoring this movement will leave a positive trend.

6. Market Cap
$262m Market Cap, a fair size for investing in.

7. Company Activities
Retail food brand manager and franchisor
Donut King, Michel's Patisserie, Brumby's Bakeries, Esquires Coffee Houses and bb's cafe.
Donuts in my opinion may go bankrupt in the long term, because of healthy Australians. I expect RFG to overcome it though. The other sectors seem fine.
Could be affected by a fall in consumer spending.

8. News
Record Profit
Bid for OAK, Cancellation of Bid for OAK
Flooding affecting franchisees
Only short term negatives imo, other news is positive.

Overall
Good finances and growth.
Undervalued SP.
Low liquidity.
Good trend, bar the loss of comfidence due to the OAK bid.
Fine market cap.
Fine industry, but the donuts imo could be a problem in the future.
Fine news.

Overall a quite safe and good investment. The only problems are the liquidity, unhealthy donuts and potentially consumers spending less.

 

[skc]

After seeing a presentation by Lincoln Intellegent MArket Solutions, I will apply their 8 golden rules to RFG. I have not yet applied these rules to RFG, but it is currently one of my favourite shares.

Overall a quite safe and good investment. The only problems are the liquidity, unhealthy donuts and potentially consumers spending less.

The Lincoln 8 Golden rules are quite effective when it comes to avoiding disasters and outperforming the market. It doesn't imo achieve absolute performance (nor is it their claim as far as I know).

2 things for you to think about wrt RFG.

1. Collins food IPO has luke warm reception and priced at a level similar to RFG.
2. The OAK bid has been done and dusted for so long, why hasn't the share price gone back up to pre-bid level?

 

[nomore4s]

Donuts in my opinion may go bankrupt in the long term, because of healthy Australians.

Healthy Australians? Aren't we one of the most over weight countries in the world? IMO in general Aust are getting fatter not healthier.

I also am having trouble understanding your rational on RFG being able to overcome Donut King going broke when out of RFG's 1100 franchises 350 (over 30%) of them are DK's. If you truly think DK will go broke in the near future I really cannot see how RFG's sp wouldn't take a substantial hit losing 30% of it's franchises. FWIW I personally can't see DK going broke anytime soon.

 

[ROE]

Healthy Australians? Aren't we one of the most over weight countries in the world? IMO in general Aust are getting fatter not healthier.

I also am having trouble understanding your rational on RFG being able to overcome Donut King going broke when out of RFG's 1100 franchises 350 (over 30%) of them are DK's. If you truly think DK will go broke in the near future I really cannot see how RFG's sp wouldn't take a substantial hit losing 30% of it's franchises. FWIW I personally can't see DK going broke anytime soon.

Dominos Pizza seems pretty un-healthy as well and that what the analsyst said about them
some years ago when they languis around $2 ish

I still let my kids eat donuts here and there ..I wont let them eat every day
same with pizza and anything else people consider un-healthy...

everything in moderation and exercise are my rules...
(riding bikes, kick football, paddle kayaks will make those unhealthy food disappear pretty quick)

just because something isn't that healthy you dont eat them at all..

if you exercise often you can virtually eat most things and you still fit and healthy
same goes with fiancing and money, if you stack away a bit each week and spend less than
you earn through life you never have money trouble

and what fun is there in life if you dont go a bit crazy on ice cream,
cakes, lollies, alcohol and other fun naughty stuff once in a while?

Try a movie night with vegies instead of Pizza, would that be fun?

I can tell you from personal experience
donut kings is very profitable and so is Michels

 

[danbradster]

Healthy Australians? Aren't we one of the most over weight countries in the world? IMO in general Aust are getting fatter not healthier.

I also am having trouble understanding your rational on RFG being able to overcome Donut King going broke when out of RFG's 1100 franchises 350 (over 30%) of them are DK's. If you truly think DK will go broke in the near future I really cannot see how RFG's sp wouldn't take a substantial hit losing 30% of it's franchises. FWIW I personally can't see DK going broke anytime soon.

My thoughts were that of McDonalds. Mcdonalds have had to evolve their menu dramatically over the years; adding healthier options, showing green backgrounds in the photos...dusting their sourdough buns with flour. It is just my feeling that companies are trying to evolve to healthier food, but donuts don't have the option of evolving. Also the Dunkin Donuts foray into Australia didn't turn out well.

I also didn't look at the financial performance of the donuts, so it is only a feeling rather than an evidence backed opinion.

Thanks for all the comments, they are interesting.

 

[danbradster]

The Lincoln 8 Golden rules are quite effective when it comes to avoiding disasters and outperforming the market. It doesn't imo achieve absolute performance (nor is it their claim as far as I know).

2 things for you to think about wrt RFG.

1. Collins food IPO has luke warm reception and priced at a level similar to RFG.
2. The OAK bid has been done and dusted for so long, why hasn't the share price gone back up to pre-bid level?

CKF seems to have listed yesterday? I can't see them in Commsec yet.

The Disclosure Docuemt makes me hungry, but not interested. I don't know the listing price though.

 

[skc]

CKF seems to have listed yesterday? I can't see them in Commsec yet.

The Disclosure Docuemt makes me hungry, but not interested. I don't know the listing price though.

They haven't listed yet. Price is $2.50 (it's only on the 2nd page of the document).

Anyway the point wasn't that you should be interested in CKF... just saying may be that's what food companies are worth (i.e. in earnings multiple terms) in today's market.

CKF EV/EBIT 7.7x, Price/NPAT = 9.5, Yield = 6.4%
RFG EV/EBIT 7.6x, Price/NPAT = 9.5, Yield = 5.6%

RFG probably has a more diversified portfolio of brands and better growth profile however.

 

[McLovin]

Healthy Australians? Aren't we one of the most over weight countries in the world? IMO in general Aust are getting fatter not healthier.

I have to agree. Australians are overweight. Just because a few people get their noses out at McD's et al for advertising when kids are watching TV doesn't mean people are going to stop eating what is bad for them. Just look at the amount of people who continue to smoke despite the taxes/ad campaigns/hiding cigarettes/known fact that you have a very high chance it will kill you.

I think it was a convenience for Krispy Kreme to go into administration and reorganise its debts, it had more to do with company centric issues than with Australians generally wanting to eat healthy. And my own personal opinion, KK was rubbish.

 

[Tysonboss1]

The Lincoln 8 Golden rules are quite effective when it comes to avoiding disasters and outperforming the market. It doesn't imo achieve absolute performance (nor is it their claim as far as I know).

Isn't that the key to successful investment.

You don't always have to come up with the smartest ideas, As long as you can avoid disasters and keep hitting singles and doubles you will get alot of runs on the board before the game is over.

 

[Tysonboss1]

CBA is at the same price it was 4 1/2 years ago so I would say not.

But it has risen from 12 to 50 over the past 15years, and steadily increased it's dividend the whole time.

 

[skc]

Isn't that the key to successful investment.

You don't always have to come up with the smartest ideas, As long as you can avoid disasters and keep hitting singles and doubles you will get alot of runs on the board before the game is over.

Well that's half the key I suppose. The other half is hitting singles.

My point is that the Lincoln method will not produce alpha return if the whole market is going down the toilet. But yes it's definitely better than random dart board or what many people can do.

Now back to the donuts if you don't mind