# RFG - Retail Food Group



## Dreadweave (20 October 2009)

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.


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## Dreadweave (7 November 2009)

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.


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## Wysiwyg (17 July 2011)

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?


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## So_Cynical (17 July 2011)

Wysiwyg said:


> 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.


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## ROE (17 July 2011)

Wysiwyg said:


> 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


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## Wysiwyg (17 July 2011)

So_Cynical said:


> 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.


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## Wysiwyg (17 July 2011)

ROE said:


> 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  ..
> 
> ...



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.


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## So_Cynical (17 July 2011)

Wysiwyg said:


> 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.



Wysiwyg said:


> 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.


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## ROE (17 July 2011)

Wysiwyg said:


> 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.


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## danbradster (18 July 2011)

ROE said:


> 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.


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## skc (18 July 2011)

danbradster said:


> 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?


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## nomore4s (18 July 2011)

danbradster said:


> 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.


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## ROE (18 July 2011)

nomore4s said:


> 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


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## danbradster (18 July 2011)

nomore4s said:


> 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.


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## danbradster (18 July 2011)

skc said:


> 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.
> 
> ...




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.


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## skc (18 July 2011)

danbradster said:


> 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.


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## McLovin (19 July 2011)

nomore4s said:


> 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.


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## Tysonboss1 (19 July 2011)

skc said:


> 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.


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## Tysonboss1 (19 July 2011)

Wysiwyg said:


> 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.


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## skc (19 July 2011)

Tysonboss1 said:


> 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


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## Tysonboss1 (19 July 2011)

skc said:


> Now back to the donuts if you don't mind




and coffee


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## Wysiwyg (19 July 2011)

Tysonboss1 said:


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



 It was the first stock I bought so I do know where it has come from.


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## Tysonboss1 (19 July 2011)

Wysiwyg said:


> It was the first stock I bought so I do know where it has come from.




So why would you think that a company that is steadily raising dividends must over time have a decreasing share price.


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## Wysiwyg (19 July 2011)

Tysonboss1 said:


> So why would you think that a company that is steadily raising dividends must over time have a decreasing share price.



When did I think that?


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## Tysonboss1 (19 July 2011)

Wysiwyg said:


> 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?






Wysiwyg said:


> When did I think that?




the above post.


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## Wysiwyg (19 July 2011)

Tysonboss1 said:


> So why would you think that a company that is steadily raising dividends must over time have a decreasing share price.



I don't think they 'must' but clearly some peak on share price and plateau or decline over time. For example I could not buy 1000 shares in a company at $6 and watch the share price drop to $4 for a pizzly 5% dividend. Dividend and capital growth for me thanks.


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## danbradster (19 July 2011)

Wysiwyg said:


> I don't think they 'must' but clearly some peak on share price and plateau or decline over time. For example I could not buy 1000 shares in a company at $6 and watch the share price drop to $4 for a pizzly 5% dividend. Dividend and capital growth for me thanks.




Rising dividends does not suggest a company has peaked.

The rising dividend payout ratio could suggest a slowdown in growth, but it doesn't have me worried.  I see them paying down debt quickly and making some acquisitions, but they also increasing dividend payout ratio.  So it seems they are leaning towards dividends over growth, but the growth with hopefully continue, the cash flow will support it easily at least.

Falling debt/gearing allows for further acquisitions for growth.  Rising dividends allows me to buy more share if I want to.  Either option is quite fine, as long as the RFG business model is good.


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## Tysonboss1 (20 July 2011)

Wysiwyg said:


> I don't think they 'must' but clearly some peak on share price and plateau or decline over time. For example I could not buy 1000 shares in a company at $6 and watch the share price drop to $4 for a pizzly 5% dividend. Dividend and capital growth for me thanks.




Better than watching it go to 4 without a dividend. To many companies hold cash they don't need and end up wasting it on expansion efforts that don't create value. When determining whether a company is going to create value for shareholders you need look alot deeper than whether their dividend pay out ratio is high.


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## ROE (28 February 2012)

Result will be out this week and they just acquire 
http://www.pizzacapers.com.au/ 

hasn't been too bad of a stock so far 
steady rising price, steady increase in dividend payment
steady small acquisition that add that tiny little extra to earnings

let see how perceived un-healthy opinion vs rock star fundamentals pan out in a few years.

something I learn from Warren Buffet this week in his annual letter to shareholders..
you can look all you like, but what you see is what matters 

I have looked at some stocks and I did not see therefore I join the game late or not joining at all...

I must admit some business I can not see well at all but some business as soon
as I look I see it right a way , despite the bad press and these are stock that time and time again delivered multi baggers ... so I must learn to stick to the one I see well when I look ...


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## ROE (29 February 2012)

1H12 Highlights 
 6.7% increase in 1H12 NPAT to $14.5m (1H11: $13.6m) 
 21.4% increase in interim dividend (to 8.5 cps) 
 Increased dividend payout ratio to 63% (1H11: 55%) 
 Gearing ratio reduction to 29.5% - lowest since 2007 debt funded acquisitions 
 Continuing strong net cash flow conversion to EBITDA of circa 94% 
 Gross margin expansion to 83.9% (pcp: 66.4%) 
 20 new outlets commissioned consistent with guidance 
 Rapid and successful integration of NZ based Evolution Coffee Roasters Group (acquired Sep 2011) 
 Positive weighted AWS and ATV growth in  all franchise systems


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## Ves (23 August 2012)

Result looks pretty good to me on first glance.  I thought this was under-valued in the $2.50s and picked some up.

The acquisition fits in with their strategy & sees them try to become a market leader in the gourmet pizza niche.  Interesting to see how this fares against the backdrop of Dominoes going from strength to strength.

I think the growth and results over the past few years demonstrates the ability of management to assimilate and manage franchise systems in a profitable and cost-effective manner.  It's not easy, but they've done a good job so far and the acquisitions that they have made make sense.  The Michel's restructure also looks to have boosted margins quite nicely. The diversity of earnings may well be a key if our economy starts to "tank" as well.


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## ROE (23 August 2012)

another year another dividend increase -
Joly this year with dividend increase galore
CAB JIN RFG CCP CCV TGA CDA DMP 
waiting for XRF That will complete the circle...


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## Ves (6 October 2012)

What are you doing in terms of the SPP, ROE?   I think it looks pretty attractive at $2.80. Will need to do some further calculations and thinking on why they brought forward the vendor payments though.


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## CanOz (6 October 2012)

Nice chart too Ves...Its met selling at 3.00 in the past...if it clears that its on to challenge old highs at 3.08....after that its blue skies and new ground!


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## McLovin (6 October 2012)

Anyone tried Pizza Capers? I've tried Crust and found it pretty underwhelming. They call it gourmet but it really just tastes like any other mass produced pizza.

The growth in Crust has been phenomenal. Even in 2006 they only had eight stores. Six years later and they have over 100. They must be doing something right.


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## Ves (6 October 2012)

McLovin said:


> Anyone tried Pizza Capers?



Living in QLD, they are starting to pop up every where now.

I really like it.  Definitely better than Dominoes quality wise.  Never tried Crust, seems to be a Sydney chain?


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## McLovin (6 October 2012)

Ves said:


> Living in QLD, they are starting to pop up every where now.
> 
> I really like it.  Definitely better than Dominoes quality wise.  Never tried Crust, seems to be a Sydney chain?




I just suggested it to McLovin's lady friend. She turned her nose up at the idea of pizza, so I guess it's Thai, again.

Looks as though they don't deliver to me anyway.


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## CanOz (6 October 2012)

McLovin said:


> I just suggested it to McLovin's lady friend. She turned her nose up at the idea of pizza, so I guess it's Thai, again.
> 
> Looks as though they don't deliver to me anyway.




LOL, why does your lady friend like Thai and not Pizza McLovin?


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## McLovin (6 October 2012)

CanOz said:


> LOL, why does your lady friend like Thai and not Pizza McLovin?




Apparently pizza isn't a healthy option. News to me!


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## ROE (12 November 2012)

paid $15K for my SPP

this business the longer you hold the more money you make...
time is definite your friend if you are into this business.

I reckon EPS this year around 29-30c and dividend 60% of that maybe 18c or so
make it a respectable yield that more reliable than cash in the bank 

DMP unhealthy check
RFG unhealthy check
CKF unhealthy check

how come these guys keep making more and more? next time someone mentioned the word unhealthy 
maybe they mean unhealthy for your portfolio if you dont own them


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## ROE (12 November 2012)

Ves said:


> What are you doing in terms of the SPP, ROE?   I think it looks pretty attractive at $2.80. Will need to do some further calculations and thinking on why they brought forward the vendor payments though.




doh havent check thread this for a while  I take whatever available to me ... $2.85 still cheap in my book
this business can easily match inflation and then some more and increase dividend every two years...

and should China venture pay off it be first  Aussie Franchise that goes Global to take on Maca and KFC
DMP gone over sea but they cant go global as the US Dominos own the other countries


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## Ves (12 November 2012)

I picked up some more with the SPP too. 

The coffee van business that they picked up is interesting.  It's obviously small in the scheme of things, but there's a market for this kind of thing, and there is the potential for organic growth with little capital required.  Plenty of high traffic spots where you cannot put an actual shop that they can park the vans.  Interesting to see if they can make it take off in Australia. Plus, it integrates pretty nicely with their existing coffee franchises and distribution.


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## ROE (12 November 2012)

Ves said:


> I picked up some more with the SPP too.
> 
> The coffee van business that they picked up is interesting.  It's obviously small in the scheme of things, but there's a market for this kind of thing, and there is the potential for organic growth with little capital required.  Plenty of high traffic spots where you cannot put an actual shop that they can park the vans.  Interesting to see if they can make it take off in Australia. Plus, it integrates pretty nicely with their existing coffee franchises and distribution.




Aussie can do with a few of those at sport ovals, man the coffee is terrible at those places ...
RFG still has around 30-40m in the kitty for further bolt on acquisition ...

more announcement in due course....


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## ROE (15 November 2012)

SSP over subscripe
Get 75% of pro-rata holding so got my 15K


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## ROE (21 February 2013)

Another dividend increase CCV CCP CAB RFG check.....XRF profit up 39% but they pay dividend once a year so expect it to increase again this year ...

waiting for JIN CDA CKF

1H13 Highlights
● 10.5% increase in 1H13 Core NPAT to $16.5m exceeding guidance of 7.5%
● 11.8% increase in interim dividend to 9.5 cents per share
● Increased dividend payout ratio to 76.0%
(1)
● Gearing ratio reduced to 27.4%, lowest since Listing in 2006
● Acquisition of Crust Gourmet Pizza & The Coffee Guy
● Net outlet growth of 182 including record organic growth of 45**
● Weighted AWS of 1.7%


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## VSntchr (11 March 2013)

Been doing a bit of reading on this business. Management seems to be proficient at the growth by acquisition strategy with a good track record of growing earnings.

Looking at the obvious valuation metrics such as PE it doesn't look expensive ~13x and has a yield at the current price of over 5% before franking creds are considered...but using a DCF model I have this one under $3. 

Im pretty new to attempting valuations with a DCF approach so would appreciate others input here...

Could it be that I am using the method erroneously, or is this stock pricey (from a dcf viewpoint) due to a strong div yield and apparent growth prospects?


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## VSntchr (7 April 2013)

VSntchr said:


> Been doing a bit of reading on this business. Management seems to be proficient at the growth by acquisition strategy with a good track record of growing earnings.
> 
> Looking at the obvious valuation metrics such as PE it doesn't look expensive ~13x and has a yield at the current price of over 5% before franking creds are considered...but using a DCF model I have this one under $3.
> 
> ...




Anybody?

Stock has been holding up well in the current environment. Defensive type business with a strong yield


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## McLovin (7 April 2013)

What are your assumptions in the DCF model?


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## VSntchr (7 April 2013)

Discount rate 11%
Terminal growth rate 3%
Debt $87m
Shares 131m

Earnings of $30m this FY,  growing at 12%, 10%, 8%, 7% for the next annual periods.


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## tinhat (7 April 2013)

I don't really know much about this company but it has quite a bit of debt which has turned me off looking into it further (high gearing to tangible assets). Also, I wonder if it has too many businesses in its portfolio. I understand they are all quite similar and so the business model probably replicates across them to a degree. If they achieve the earnings growth that VSntchr has forecast then I would assume that all else being equal the debt won't be a problem. I guess I am biased against this type of business. I hate shopping centres and I have nothing but disdain for anyone who eats in a shopping centre food hall. They, along with facebook, are the cesspit of humanity.


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## McLovin (8 April 2013)

VSntchr said:


> Discount rate 11%
> Terminal growth rate 3%
> Debt $87m
> Shares 131m
> ...




I think you'll find the number might seem low because you reach terminal growth in 5 years. For instance, how does the valuation change if you change the assumption to 5% growth for years 6-10 and then 3% growth thereafter?

Also, remember that DCF requires you to make assumptions around changes in working capital and debt and these need to be factored in. Using straight earnings will only give you half the picture.


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## Ves (8 April 2013)

VSntchr said:


> Discount rate 11%
> Terminal growth rate 3%
> Debt $87m
> Shares 131m
> ...



May I ask how you arrived at $30 million NPAT for 2013?   It's fair bit lower than consensus forecasts (at least those that I can see on Commsec).  Your estimates work out to be about 23 cents per share.  I'd say it will come in around 25-27 cents per share depending on the performance of the acquisitions. Cash flow is also generally higher than profit in this business as it isn't very asset intensive.  For the same reason the level of gearing on their balance sheet isn't really a big issue.

I'm getting an NPV of $5.09 using your figures.

Year 1  $0.229
Year 2  $0.256
Year 3  $0.282
Year 4  $0.305
Year 5 $0.326

Discounted back to today using 11% discount rate these total to $1.01.

Terminal value  $0.326  /  (0.11-0.08)  = $4.08

NPV  $5.09

One of us is miscalculating something.   I've just plugged the figures into Excel and used the NPV function.


----------



## McLovin (8 April 2013)

I should have kept my mouth shut until I was in front of a computer with Excel on it!

I plug that in to Excel, I get the same results as Ves.

I guess the next question is how much organic growth is there in the business v acquired growth.


----------



## Ves (8 April 2013)

Ves said:


> Terminal value  $0.326  /  (0.11-0.08)  = $4.08



Quick correction  -  this line should say Terminal value  $0.326  /  *(0.11-0.03)*  = $4.08

The real judgment call is assumptions made to calculate the terminal value.  This is where the biggest error margin lies. It's generally the biggest component of the calculation numerically.

I don't have the confidence to say that this company will *grow at 3% forever.* 

I would still be uncomfortable, but more likely, to use a 0% perpetuity, and increase the discount rate used for the terminal value to something like 15%.

For example, a terminal value with 0% implied growth, 15% discount rate in this case would be $0.326 / 0.15 = $2.17.   NPV reduces to $3.18.  As per McLovin's comment _Add 3% growth year 6-10 and it's about $4.20._


----------



## VSntchr (8 April 2013)

Ves said:


> Quick correction  -  this line should say Terminal value  $0.326  /  *(0.11-0.03)*  = $4.08
> 
> The real judgment call is assumptions made to calculate the terminal value.  This is where the biggest error margin lies. It's generally the biggest component of the calculation numerically.
> 
> ...




Thanks for all this information guys.

I must admit, my valuation skills are very poor and im trying to learn as much as possible to improve this aspect of my investing.

Ive so far just been lazy and used earnings rather than cash flow, I knew this wouldn't be the most accurate method but without knowing exactly I just went the easier route.


----------



## chops_a_must (8 April 2013)

What a great chart.

Thanks for bringing it to my attention.

If it values well, and technically looks good, it'll get an entry from me.


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## ROE (8 April 2013)

[SUP][/SUP]







Ves said:


> Quick correction  -  this line should say Terminal value  $0.326  /  *(0.11-0.03)*  = $4.08
> 
> The real judgment call is assumptions made to calculate the terminal value.  This is where the biggest error margin lies. It's generally the biggest component of the calculation numerically.
> 
> ...




To get around that you can factor in probability
100% is you are spot on 50% it goes either way

I normally use 70% if i done the research And confident of its 
prospectfor my calculation so extra 30% margin

Take your number and multiply by probability outcome


----------



## Ves (8 April 2013)

ROE said:


> [SUP][/SUP]
> 
> To get around that you can factor in probability
> 100% is you are spot on 50% it goes either way
> ...



That's true - Bayesian probability I believe they call it.  

Do you use DCF valuations, ROE?


----------



## ROE (8 April 2013)

Ves said:


> That's true - Bayesian probability I believe they call it.
> 
> Do you use DCF valuations, ROE?




not really  too technical most model ...most of the time I know enough to make a judgement rather rely on a model...

If I am happy with a business current earning Say X..paying Y dividend and I think it can maintain earning for next 5 years at least at inflation rate then I am happy...

forever is a long time and 5 years is a decent long term goal for investing..

this is the best thing I found that close to what I want to do, it covered all the variables I need once I done the research...

http://www.moneychimp.com/articles/valuation/buffett_calc.htm 

They called it Buffet Calculator but I dont know if Buffet use it ..who cares but it fit my model perfectly....

I like their use of Bond Rate as close to Guarantee return then work from there rather than use an arbitrary 11% discount figure...


----------



## Ves (8 April 2013)

That's an interesting perspective - thank you for sharing   

I like to keep my DCFs and ratios bare bones simple as well.   I spend a lot more time reading the reports and presentations and all that sort of thing.   The valuation is just my research being plugging into a numerical format. Most of the time I don't even get that far with most companies!


----------



## VSntchr (8 April 2013)

> Terminal value  $0.326  /  (0.11-0.08)  = $4.08
> 
> 
> 
> One of us is miscalculating something.   I've just plugged the figures into Excel and used the NPV function.






Would this not give us TV at year 5, and subsequently require discounting back to year 0?


----------



## McLovin (8 April 2013)

VSntchr said:


> Would this not give us TV at year 5, and subsequently require discounting back to year 0?




Yes.


----------



## Ves (8 April 2013)

McLovin said:


> Yes.




Are you sure?   I've never done that. My thoughts are that it is a perpetuity based on a discount rate, so there's no need to discount it again.


----------



## VSntchr (8 April 2013)

Ves said:


> Are you sure?   I've never done that. My thoughts are that it is a perpetuity based on a discount rate, so there's no need to discount it again.




I feel that its a perpetuity, but its beginning 5 years from now. Hence to find what its worth now, I discount it back.

Kind of confusing and happy to be proved wrong - but I'm pretty sure this is what they taught me at uni


----------



## Ves (8 April 2013)

VSntchr said:


> I feel that its a perpetuity, but its beginning 5 years from now. Hence to find what its worth now, I discount it back.
> 
> Kind of confusing and happy to be proved wrong - but I'm pretty sure this is what they taught me at uni



Yeah now I'm confused too!


----------



## McLovin (8 April 2013)

Ves said:


> Are you sure?   I've never done that. My thoughts are that it is a perpetuity based on a discount rate, so there's no need to discount it again.




Yep. You've calculated a value in year x but in order to get it's value today you need to discount it by FV/(1+i)^x. Otherwise you'll get some strange results if you calculate TV in year 20 and then bring that amount undiscounted back into your NPV in today's money.

Sorry, I completely missed that earlier, my mind has been elsewhere today had a bit of a medical emergency with a family member.


----------



## Ves (8 April 2013)

McLovin said:


> Yep. You've calculated a value in year x but in order to get it's value today you need to discount it by FV/(1+i)^x. Otherwise you'll get some strange results if you calculate TV in year 20 and then bring that amount undiscounted back into your NPV in today's money.
> 
> Sorry, I completely missed that earlier, my mind has been elsewhere today had a bit of a medical emergency with a family member.



Ok, just looking at one of my models.   Seems to me I've done it this way. 

However, today doing it on the fly I've forgotten the concept. At least this shows me I really don't understand the maths as well I thought I did.

Apologies guys.  The dumb corner for me.


----------



## Ves (8 April 2013)

Ves said:


> I'm getting an NPV of $5.09 using your figures.
> 
> Year 1  $0.229
> Year 2  $0.256
> ...



Here you go.  Updated calcs. Is that what you are getting McLovin?


----------



## VSntchr (8 April 2013)

Ves said:


> Ok, just looking at one of my models.   Seems to me I've done it this way.
> 
> However, today doing it on the fly I've forgotten the concept. At least this shows me I really don't understand the maths as well I thought I did.
> 
> Apologies guys.  The dumb corner for me.




Not the dumb corner at all. Simple error. I'm just glad I found a way to help someone! I guess the phrase "there's never a dumb question" applies in this case. 

Hope your relative is okay McLovin....and thankyou for expressing in such clear terms what I had in my head


----------



## McLovin (8 April 2013)

Ves said:


> Here you go.  Updated calcs. Is that what you are getting McLovin?




I got $3.43...

Discount rate 11%
Terminal growth rate 3%

TV at end year 5...





I think it's pretty funny that the three of us are getting a Finance 101 tute question wrong.


----------



## Ves (8 April 2013)

VSntchr said:


> Not the dumb corner at all. Simple error. I'm just glad I found a way to help someone! I guess the phrase "there's never a dumb question" applies in this case.



I wouldn't normally share my own calcs.... but trying to proof check someone else's calcs publically is always a great way to learn (and make an idiot out of yourself!).

McLovin -  I'm getting 2.178 for the terminal value.  Agree with everything else.

Calcs are $4.075 /  (1.11)^6 = $2.178


----------



## craft (8 April 2013)

Ummmm

What about the cost of growth - It's not free.

before you even start screwing up the calcs you have already made a large magnatude error.


Those sort of terminal value or DDM calcs should be based on sustainable dividends or free (after investing for growth) cash flow not earnings.


----------



## McLovin (8 April 2013)

Ves said:


> Calcs are $4.075 /  (1.11)^6 = $2.178




Terminal value is derived at the end of year 5 not year 6.


----------



## rbgmauq (8 April 2013)

McLovin said:


> Terminal value is derived at the end of year 5 not year 6.



It could be at the beginning of year 6. 


I'll take a look at buying back in around this level. Technical buying signal at au.stoxline website.


----------



## McLovin (8 April 2013)

rbgmauq said:


> It could be at the beginning of year 6.




Well if it's at the beginning why would you discount it as though it's at the end of the period? There's little difference between 11:59pm and 12:00am


----------



## craft (8 April 2013)

Growth per se does not add any value – only growth with a positive margin over the cost of capital adds value.

If growth was 20% it still wouldn’t add any value if the return is the same as the capital required to produce that growth.  If there is no positive spread from investment over cost of capital then terminal value is the PV of earnings/discount rate.

If growth is less than the cost of capital required to produce the growth then valuation will be less than earnings/discount rate

Only if the growth provides a return greater than the cost of capital will growth add any value.

*What is the return on investment generated from the 3% terminal growth?* 

Just plugging 3% growth into the dividend discount model without regard to the profitability will lead you astray – *profitability and change in profitability is what matters in valuation*


----------



## ROE (9 April 2013)

Sometimes a lot of business get trades at a premium and rarely cheaper
Due to its business model and reliability of earning 
and using a model and stick to it you may miss out some great business

When was NVT trade cheap - All the time I hold them
It always trades at a premium even during bear market ....

People scream it expensive but market always 
Price it at a premium....

So it more of an art, stock picking science play
a little part but mostly art I reckon...


----------



## craft (9 April 2013)

ROE said:


> When was NVT trade cheap - All the time I hold them
> It always trades at a premium even during bear market .......




On my calculations NVT is often cheap to fair very rarely expensive. I reckon a lot of inappropriate models are applied to NVT for people to come to the conclussion that its expensive. 



ROE said:


> So it more of an art, stock picking science play
> a little part but mostly art I reckon...




I agree with this even the best models are limited by the assumptions you make about the inputs.  I call my valuation method SWAG (scientific wild **** guessing) The art is being able to make money with only a rough valuation peg to guide you - not in being able to arbitrage the difference between the market and a precise valuation. Precise is impossible when the future is unknown – that said though good valuation understanding is important in developing the art.


----------



## craft (9 April 2013)

My issue with the DDM used so far in this thread is that they haven’t accounted for the cost of growth.

I can’t work out the sustainable dividend for the first 5 years because I don’t know from the information given whether the growth in EPS is from profitability change  or additional investment.

But I will try and make my point on the terminal value because it is most logical that the terminal growth stems from re-investment rather than never ending profitability expansion.





Using a return of 17% the PV of the terminal cash flow is $2.05

Changing no growth measures – but simply the profitability to 11% PV of the terminal value becomes $1.81. This is the same as the PV of Earnings/discount rate – which is logical because the value of the growth is being neutralised by the cost of the capital to fund the growth.

Changing the profitability to 5% the PV of the terminal value becomes $1.00.


----------



## galumay (9 April 2013)

I know its a bit OT, but do you guys have a reasonable DDM spreadsheet you are prepared to share? I have downloaded a couple but they are not the best to work with! I have tried making my own but i think my excel skills are not up to it!


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## Ves (9 April 2013)

galumay said:


> I know its a bit OT, but do you guys have a reasonable DDM spreadsheet you are prepared to share? I have downloaded a couple but they are not the best to work with! I have tried making my own but i think my excel skills are not up to it!



Try here:

http://people.stern.nyu.edu/adamodar/New_Home_Page/valuation/val.htm

There is a section called "Spreadsheets."  It might require you to also read some of his guides and course papers.


----------



## craft (9 April 2013)

galumay said:


> I know its a bit OT, but do you guys have a reasonable DDM spreadsheet you are prepared to share? I have downloaded a couple but they are not the best to work with! I have tried making my own but i think my excel skills are not up to it!




All the generic spreadsheet models you could ever want, all with open formula.

http://people.stern.nyu.edu/adamodar/New_Home_Page/spreadsh.htm

The specific DDM model you are asking for is ddmst.xls – “Stable growth, dividend discount model; best suited for firms growing at the same rate as the economy and paying residual cash as dividends.”

Actually the site just about covers anything you could ever want to know about valuation and it’s all for free – unfortunately there is so much there that it probably overwhelms most people.

My opinion though is that study in this area has a high payoff.


Edit.

V - as my kids would say JINX.


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## Ves (9 April 2013)

craft said:


> My issue with the DDM used so far in this thread is that they haven’t accounted for the cost of growth.
> 
> I can’t work out the sustainable dividend for the first 5 years because I don’t know from the information given whether the growth in EPS is from profitability change  or additional investment.
> 
> ...



By profitability are you talking about a metric such as return on invested capital?

Can I check the maths?    Capital invested (or payout ratio in your s/sheet) x return on capital = growth

So where Capital invested is X.    

X   x  5%  = 3%

X  =  3% / 5%  =  60%

So they can afford to payout 40% of earnings if they want to grow earnings by 3% in the next year.

$0.34  x  40%  = $0.136     (which is the same as what you have under this scenario in year 6 under 5% profitability).

Obviously theory and practice are different... but I like to try to understand the maths.


----------



## craft (9 April 2013)

Ves said:


> By profitability are you talking about a metric such as return on invested capital?
> 
> Can I check the maths?    Capital invested (or payout ratio in your s/sheet) x return on capital = growth
> 
> ...




Yep - Spot on.

for 17% : (1-growth/ROI) = (1-3%/17%) = 82.35% of earnings is sustainable dividend at 3% growth rate. .8235 * earnings of 34cents = 28 cents sustainable dividend. (all other things being equal – which they seldom are)


----------



## Ves (9 April 2013)

craft said:


> Yep - Spot on.
> 
> for 17% : (1-growth/ROI) = (1-3%/17%) = 82.35% of earnings is sustainable dividend at 3% growth rate. .8235 * earnings of 34cents = 28 cents sustainable dividend. *(all other things being equal – which they seldom are)*



Thank you for the confirmation!

Yes - there are a small number of high quality businesses that manage to be able to source interest-free leverage that they can earn high returns on.

I think you mentioned one on the previous page.  The maths for those situations is much more complicated (and mostly beyond me).


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## galumay (9 April 2013)

Thanks for the link Craft & Vespupria. I really enjoy your discussions as well! I am really trying to get a handle on this business of valuing shares before i put my money into the market. Its discussions like yours around RFG that help me - and scare the s*** out of me - because I am not sure I can ever really understand all the inputs and formulas required to get to a fair valuation!


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## prawn_86 (9 April 2013)

galumay said:


> I am not sure I can ever really understand all the inputs and formulas required to get to a fair valuation!




Keep in mind that there is no such thing as an accurate 'fair valuation' and each model is going to have various assumptions and inputs. In fact you could have different models coming up with different fair values and have them both proven correct at some point by the market. Or they could be 'wrong' but market movements still prove them correct (if that makes sense).

The discussion on this thread has been great.


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## galumay (9 April 2013)

prawn_86 said:


> Keep in mind that there is no such thing as an accurate 'fair valuation' and each model is going to have various assumptions and inputs.




Yes, I am beginning to think that if the little bit i have learned, prevents me from buying total dogs then I will have a great advantage in investing straight up - and i may well be happy with a system that does no more than that!


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## VSntchr (9 April 2013)

galumay said:


> Yes, I am beginning to think that if the little bit i have learned, prevents me from buying total dogs then I will have a great advantage in investing straight up - and i may well be happy with a system that does no more than that!




Yep. Avoiding the dogs is the BIGGEST step in my opinion. It instantly raiseses performance above the majority. The next step is to proceed slowly, not to try and jump at every half decent opportunity (something I have been guilty of). 

As soon as I started on my path to where I am now, I virtually instantly flipped my results and have been profitable ever since.
I know I have jumped further in practice than I have in knowledge -but I am now working to close that gap. With that I hope to improve my *risk adjusted * returns.

Kinda off topic now, but it is relevant in the sense that RFG is not a dog stock


----------



## chops_a_must (29 April 2013)

An outstanding breakout today.

Not much volume, but a very good break from a nice pattern.


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## VSntchr (29 April 2013)

The reason volume was low was because the sellers dried up.
Check the selling depth after close - it is like a barren desert!


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## JTLP (7 June 2013)

Bit quiet for a month now and RFG; like Mr Market; has been a bit shaky. Today's close of $3.30 represents a grossed up yield of 8%; with hefty interest cover.

I've always liked this co but felt it was getting away from me. Perhaps now is a good time to sniff around again? Not too expensive on the P/E ratio

Thoughts?


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## ROE (7 June 2013)

Keep calm and accumulate that all I can say 
Value emerge in times like these for many quality business -


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## ROE (8 August 2013)

why chose one ...have both 

http://finance.ninemsn.com.au/newsb...vs-retail-food-group-which-business-is-better


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## ROE (29 August 2013)

did we all keep calm and accumulate during the last panic when it was low $3 ?
Profit up 11%, Dividend up 14% ...predicting 15% grow next year...

Where are all the doubter of Dominos pizza and Coffee drinker?


----------



## Ves (29 August 2013)

ROE said:


> did we all keep calm and accumulate during the last panic when it was low $3 ?
> Profit up 11%, Dividend up 14% ...predicting 15% grow next year...
> 
> Where are all the doubter of Dominos pizza and Coffee drinker?



Still happily holding and collecting dividends.  Low $3 mark was fairly good buying,  but I missed out the last time unfortunately, but certainly didn't sell.

edit:  my average cost is about $2.70. 

This isn't badly priced at the moment if they can meet their growth targets.  I will need to look at my spreadsheet, but the result was a bit softer than I thought, but not by much.


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## galumay (29 August 2013)

I await a suitable entry, its been on my watch list all along, but I have not been watching long enough to pick up in one of the dips. My opportunity will come in good time.


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## ROE (29 August 2013)

Ves said:


> This isn't badly priced at the moment if they can meet their growth targets.  I will need to look at my spreadsheet, but the result was a bit softer than I thought, but not by much.




I think people are too hung up chasing earning forecast and price stock price to forecast perfection 
to me seriously if they grow 11% or 14% doesn't really matter as long as they grow, keep up with inflation.

people buy expecting 20% grow or what ever the figure....then when the business doesn't delivered they get disappointed.

why set the bar high and have a high probability of failing rather setting a low bar and has all the possibility of exceeding...

I like to buy business when the market price for absolutely no growth...you have every chance exceeding your expectation


----------



## Ves (29 August 2013)

Looking at the accounts more closely now that I am home.  A few trends to note in the 2013 accounts (which are most likely be a result of Crust Pizza and Pizza Capers acquisitions):

Advertising & Marketing expenses up to 21.5% of revenue vs a long run average of around 17%.  However,  EBIT margin is still 37.5%  vs long-run average of about 35% since listing. However the EBIT margin was down from the all-time high of 40.8% in 2012.  2013 total was $30.3m  vs  19.3m in the prior corresponding period of 2012.   That is a big additional investment.

Selling expenses show a very similar trend.   9.1% in 2013 vs average of 4-5% historically.

I would expect that this extra investment in awareness of the business is a result of them really ramping up their rollout and expansion of the Crust and Pizza Capers and will probably increase whilst project QSR400 is still running.   

The new Pizza businesses seem to be a lot more working capital intensive.   At least at the moment.   It will be interesting to see how much they can tighten the reins once expansion has slowed down.

Working capital as a percentage of total sales and revenue is now 9.8% (although down from 11.9% last year).   Generally has been much closer to 6% in the past.  To be fair,  there has only been an additional $5.6m investment in working capital since 30 June 2011.

Result overall is pretty clean,   probably a bit of fat in there that you could reasonably take out and get a higher profit figure.... and definitely no red flags.


----------



## McLovin (29 August 2013)

Ves said:


> The new Pizza businesses seem to be a lot more working capital intensive.   At least at the moment.   It will be interesting to see how much they can tighten the reins once expansion has slowed down.
> 
> Working capital as a percentage of total sales and revenue is now 9.8% (although down from 11.9% last year).   Generally has been much closer to 6% in the past.  To be fair,  there has only been an additional $5.6m investment in working capital since 30 June 2011.
> 
> Result overall is pretty clean,   probably a bit of fat in there that you could reasonably take out and get a higher profit figure.... and definitely no red flags.




Pretty much agree. WC is running on the higher side because of where the business is in its cycle. They're really rolling out that pizza business at a lightning speed (37 new stores excluding the acquisition). There's obviously a bit of chasing Dominos tail going on too. Interesting company. I'm happy to sit on the side and continue watching.


----------



## ROE (29 August 2013)

They also talk about possibility of acquisition, wonder if Bake Delight is up for sale I reckon they can buy that one off Private equity and has scale in fresh baking stream.

They got Brumbys may as well take Baker Delight .. I like both of them but I dont have too many brumbys where I live, I buy bread from Baker Delight I want dividend back


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## ROE (29 October 2013)

Surprise trading halt for capital raising ...what deals are they pulling now? I be happy with baker delight -


----------



## Ves (29 October 2013)

ROE said:


> Surprise trading halt for capital raising ...what deals are they pulling now? I be happy with baker delight -




They might be fast-tracking the pizza business.   Interesting that they'd raise capital to do that though...


----------



## ROE (29 October 2013)

Ok they intend to use money to roll out corporate stores and fire power for acquisition ...
Franchises stores you don't need the money as franchisee front up most of the cost.

Predict 15% NPAT grow. ...not bad ....


----------



## Ves (1 November 2013)

I have concerns with this SPP....   I dislike it when companies raise money  (and increase the issued share count) without a concrete reason.    Perhaps they do have an acquisition in the pipeline but without any details it's extremely hard for shareholders to make a logical decision on the profitability / growth from the eventual use of this money -  which in a valuation sense makes it hard to see how it doesn't dilute the value of pre-existing shares until more details come to hand.  I'd prefer them to use debt / cashflow in fast-tracking the QSR expansion / rollout.

I don't think I will take this SPP up at this price - at my hurdle rate the investment doesn't make sense.  Fair enough that they've growth at a rate of knots,  and probably will continue to do so,  but everything has its price.


----------



## Poonam (1 December 2013)

*Retail Food Group RFG Share purchase plan*

RFG are offering shareholders the opportunity to purchase parcels of shares at $4.30 per share to finance continued expansion. The company has grown steadily over the past few years returning a dividend fy of about 19c in 2013.
I wonder if they have reached a peak with that price or will expansion continue?


----------



## Ves (2 December 2013)

Ves said:


> I don't think I will take this SPP up at this price - at my hurdle rate the investment doesn't make sense.  Fair enough that they've growth at a rate of knots,  and probably will continue to do so,  but everything has its price.



Hmmm turns out that when I added the post-SPP share count to my valuation I turned around and forgot to add the capital they raised ($60m) to my valuation.  That's another $0.42 cents per share... which makes the offer more reasonable,   but not super compelling.


----------



## Poonam (2 December 2013)

Ves said:


> Hmmm turns out that when I added the post-SPP share count to my valuation I turned around and forgot to add the capital they raised ($60m) to my valuation.  That's another $0.42 cents per share... which makes the offer more reasonable,   but not super compelling.




I was thinking that it wasn't too bad. The offer provides a bit of a discount and the promise of growth is there.
I am looking at it as a stock that will continue to grow in the short to medium term, and the dividend is at about 4.5%.
I wasn't real rapped in the way they opened the offer up to institutions who had never invested previously in RFG and left the little shareholders with the scraps. They all seem to do that these days.


----------



## ROE (23 December 2013)

Poonam said:


> I was thinking that it wasn't too bad. The offer provides a bit of a discount and the promise of growth is there.
> I am looking at it as a stock that will continue to grow in the short to medium term, and the dividend is at about 4.5%.
> I wasn't real rapped in the way they opened the offer up to institutions who had never invested previously in RFG and left the little shareholders with the scraps. They all seem to do that these days.




If it was a deep discount yes small retail holder may get shafted but a small discount it's a right thing for them to offer to institution as the risk of retail investor not taking up if it trade too close to SPP price is high.

I don't  take up the SPP when it is too close to trading price for all stock I hold...I prefer to time and buy it on market under the SPP if I can or worse case at SPP and pay brokerage...more flexibility here...costing extra couple hundred bucks doesnt bother me for long term holding when you spend ten of thousands on them...

I managed to pick up 25k for RFG at 4.25 ....


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## ROE (14 March 2014)

Help RFG spread the dividend love to Charity

http://www.rfgsweethearts.com.au/index.php?r=site/howitworks


----------



## ROE (28 August 2014)

decent result significant grow profile ahead  ... so expect more and more dividend in coming years


----------



## McLovin (28 August 2014)

ROE said:


> decent result significant grow profile ahead  ... so expect more and more dividend in coming years




Where's the growth?


Last five years...
Basic EPS Growth 6.8% 0.4% 3.9% (1.5%) 1.9%

(this year would have been negative EPS growth where it not for the reduction in interest expense)


----------



## ROE (28 August 2014)

McLovin said:


> Where's the growth?
> 
> 
> Last five years...
> ...




most of the dilution is in equity raising to buy bold on acquisition
when you have scale and the distribution network that when it start paying off and EPS earning start
to click up

I dont mind static earning while they build the network, it is hard to find business that provide reliable cash cow and dividend, 

these business should be trading at premium even if there is little grow because you know what you get now and foreseeable future, where as other business it hard to predicts due to the nature of their earning... I place higher intrinsic value on business that offer me reliable cash cow I know i can trust


----------



## McLovin (28 August 2014)

ROE said:


> most of the dilution is in equity raising to buy bold on acquisition
> when you have scale and the distribution network that when it start paying off and EPS earning start
> to click up




I appreciate the need to build scale, but to be fair, these guys have 1,434 stores. How much bigger do they need to get until they finally start to realise their economies of scale? 



ROE said:


> I dont mind static earning while they build the network, it is hard to find business that provide reliable cash cow and dividend,
> 
> these business should be trading at premium even if there is little grow because you know what you get now and foreseeable future, where as other business it hard to predicts due to the nature of their earning... I place higher intrinsic value on business that offer me reliable cash cow I know i can trust




The big issue for me is same store sales, or lack of, which even in their high growth brands (QSR) is only rising with the CPI. Compare that to DMP, which is much more saturated in the market (about double the number of pizza outlets), managing to grow SSS at 6.3%. There might be more that falls to the bottom line when/if they stop buying up businesses but to me it still looks like a low growth business. I need to dig a bit deeper though, especially the cash flow stmnt -- $140m odd invested in the last five years and OCF hasn't changed. 

Always good to get your opinion though, ROE.


----------



## TPI (28 August 2014)

Now I have Pizza Capers, Crust and La Porchetta all within 5 mins drive of me so I can keep an eye on RFG's QSR category .

Last year I put an (unsuccessful) low ball offer on the La Porchetta head office/warehouse in Melbourne, it was part-owned by a couple of the franchise owners who wanted to sell and leaseback - oh well, could possibly have had RFG as my tenant!


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## McLovin (24 October 2014)

They're buying Gloria Jeans. $163.5m + $16.5 earnout. Funded by $100m in cash/debt. They're claiming EBIT for 2016 of $24m. Street Talk claims they were forecasting $11m EBIT for FY15 (and NPAT of $6m). There's no mention on how they plan to double EBIT.

I'd also be curious as to how they came up with an EV/EBIT multiple of 6.2-6.4x for 2016. It seems as though they've excluded milestone payments and the share based payment.


----------



## Ves (24 October 2014)

McLovin said:


> Street Talk claims they were forecasting $11m EBIT for FY15 (and NPAT of $6m). There's no mention on how they plan to double EBIT.
> 
> .



Are you referring to AFR / The Age?   Because I find that they are often wrong.   Company presentation says GJs  was expected to make $21.5m.  Maybe it's a typo?

Would be interested to know how much working capital is in the Gloria Jeans franchise system.   EPS accretive is often cash-flow dilutive  (see EAX latest results).    They've been clever scaling up via acquisitions for the last 8 years,   so hopefully it's as cheap as it looks  (especially post synergies).

I really like vertical integration in their coffee businesses.   Actually it is one of the things that attracted me to RFG in the first place.


----------



## McLovin (24 October 2014)

Ves said:


> Are you referring to AFR / The Age?   Because I find that they are often wrong.   Company presentation says GJs  was expected to make $21.5m.  Maybe it's a typo?




Must have been. The prezzo wasn't up when I looked before but now it is. So that changes things a bit!



			
				Ves said:
			
		

> I really like vertical integration in their coffee businesses. Actually it is one of the things that attracted me to RFG in the first place.




Why's that? What are the benefits?


----------



## Ves (24 October 2014)

McLovin said:


> Why's that? What are the benefits?



My understanding is that by having access to their own wholesale coffee & production facilities not only can they sell to suppliers & other businesses,  but they can lock in production capacity / asset utilisation in these operations by cross-selling through their franchise network.  The wholesale coffee & production segment isn't the greatest business in the world,  but it looks like it is de-risked substantially by the franchise networks,  and provides diversification via a complementary revenue stream.

They have a pretty strong bargaining position over their franchisees & are good at making agreements that enhance profitability,  so it would be hard to say "No we don't want to purchase the coffee from you."


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## pinkboy (24 October 2014)

Good to see you back Ves.


pinkboy


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## skc (24 October 2014)

McLovin said:


> They're buying Gloria Jeans. $163.5m + $16.5 earnout. Funded by $100m in cash/debt. They're claiming EBIT for 2016 of $24m. Street Talk claims they were forecasting $11m EBIT for FY15 (and NPAT of $6m). There's no mention on how they plan to double EBIT.




I think the acquisition is scheduled to complete by H1 FY15 so there'd only be 6 months of contribution.



McLovin said:


> I'd also be curious as to how they came up with an EV/EBIT multiple of 6.2-6.4x for 2016. It seems as though they've excluded milestone payments and the share based payment.




May be they are including the $4m synergy by FY16 which brings EBIT to $28m against total cost of $180m that is 6.4x.

So after the acquisition... 

Current RFG EBIT = $57.3m. Add GJ's $28m. Total => $85.3m
Current RFG Interest expense = $4.5m. New loan of ~$100m @ say 6.5% = $6.5m. Total => $11m
So *NPAT = $52m*

Apparently shares are being issued at $4.80, so 13.54m new shares to raise $65m required.

Total shares on issue = 146m + 13.54m = ~*160m.*

EPS on enlarged share base = 52/160 = 32.5c in FY16 (vs 26.5c just reported, or +23%).

If they trade on PE 17x (recently trading at ~18x) = $5.53 in FY16. Discount it back by 7% to bring it back to present value ~$5.15.

So one'd expect shares to open north of $5? Or it could open above the recent all time high at $5.17 and run away with it....  I hope so as I happened to hold them as a pair...


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## Ves (24 October 2014)

skc said:


> I think the acquisition is scheduled to complete by H1 FY15 so there'd only be 6 months of contribution.
> 
> 
> 
> ...



I don't think those revised figures include the La Porchetta contribution because it hasn't yet settled so there's probably 7-8 months not counted -  unless I am mis-reading the company presentation.

In any event, I don't think that the full year earnings contributions will flow through properly for all of these acquisitions (provided they are successfully integrated as planned)  until at least 2017 FY.  Until then it's a bit messy,  and we need to wait to see how synergies play out.

This is all about successfully leveraging scale now. Both pizza and coffee.



pinkboy said:


> Good to see you back Ves.
> 
> 
> pinkboy



Thanks mate


----------



## galumay (25 October 2014)

Interesting aquisition, as a coffee tragic I would never step foot inside a Gloria Jeans or any other coffee chain. I am a boutique roaster and have a small understanding of the business from green bean to cup. While its not the sort of coffee I drink there is a strong market for it, the margins are fantastic and the effect for RFG of scaling up their vertically integrated business to that extent will be very positive I imagine.

Happy to hold in my SMSF, I only bought very recently so its a nice surprise.


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## TPI (26 October 2014)

galumay said:


> Interesting aquisition, as a coffee tragic I would never step foot inside a Gloria Jeans or any other coffee chain. I am a boutique roaster and have a small understanding of the business from green bean to cup. While its not the sort of coffee I drink there is a strong market for it, the margins are fantastic and the effect for RFG of scaling up their vertically integrated business to that extent will be very positive I imagine.
> 
> Happy to hold in my SMSF, I only bought very recently so its a nice surprise.




galumay are you gong to participate in the share purchase plan?

Not sure what the discount will be?


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## McLovin (26 October 2014)

Ves said:


> My understanding is that by having access to their own wholesale coffee & production facilities not only can they sell to suppliers & other businesses,  but they can lock in production capacity / asset utilisation in these operations by cross-selling through their franchise network.  The wholesale coffee & production segment isn't the greatest business in the world,  but it looks like it is de-risked substantially by the franchise networks,  and provides diversification via a complementary revenue stream.
> 
> They have a pretty strong bargaining position over their franchisees & are good at making agreements that enhance profitability,  so it would be hard to say "No we don't want to purchase the coffee from you."




Interesting. I guess the question then becomes, if the roasting business is so marginal why not just outsource it to someone else? With the volume they do I imagine they'd have some pretty strong pricing power over their supplier/s.

I was digging around on this. Does anyone know anything more about why Yellow Pages Singapore pulled out of buying GJ's? It seems like it fell through only a few months ago and there is very little information on the internet. (the whole transaction seems pretty bizarre to me. Like Fairfax buying Red Rooster or something)



> Global Yellow Pages Limited bought the Castle Hill based coffee chain for $55.3m in a cash and shares deal in December, BRW reported yesterday.
> 
> The company will maintain its Australian headquarters in Castle Hill.
> 
> ...




http://www.dailytelegraph.com.au/ne...stores-may-close/story-fngr8i1f-1226829529167


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## skc (27 October 2014)

McLovin said:


> I was digging around on this. Does anyone know anything more about why Yellow Pages Singapore pulled out of buying GJ's? It seems like it fell through only a few months ago and there is very little information on the internet. (the whole transaction seems pretty bizarre to me.
> 
> http://www.dailytelegraph.com.au/ne...stores-may-close/story-fngr8i1f-1226829529167




I believe the yellowpages looked at the success of Starbucks offering free wifi internet back in the early 00's and thought to emulate them by offering free use of yellowpages in Gloria Jeans cafes to attract more patronage.

I think the GYP (SGX:Y07) was a bit of a shell company (albeit a large shell with dying cashflow). Reading through the announcements on SGX didn't actually explain how the sale failed, except noting that the vendor pulled out themselves. But the sale price was only $35.6m (+$12m debt I think), first announced on 19 Dec. The deal failed in July 2014 after GYP completed the rights issue and raised all the funds for the acquisition - and it decided NOT to return the funds to shareholders. I'd be pretty pi$$ed off if I took up those rights.

Anyway, not sure why the transaction price has changed so much. May be it was a dodgy transaction to help GYP raise some capital (the original purchase price seems ridiculously low at 3-3.7x EBIT on FY13 EBIT of $12.9m), or may be RFG is just paying too much - although a trade buyer would certainly be able to pay more due to available synergies... 

Strange... I agree.


----------



## galumay (27 October 2014)

McLovin said:


> Interesting. I guess the question then becomes, if the roasting business is so marginal why not just outsource it to someone else?




Roasting business is not something I would describe as marginal, unless there is something I am not aware of with scaling it up to that sort of size. (and I would expect that to improve the margins.)


----------



## McLovin (27 October 2014)

skc said:


> Anyway, not sure why the transaction price has changed so much. May be it was a dodgy transaction to help GYP raise some capital (the original purchase price seems ridiculously low at 3-3.7x EBIT on FY13 EBIT of $12.9m), or may be RFG is just paying too much - although a trade buyer would certainly be able to pay more due to available synergies...
> 
> Strange... I agree.




Yes, very strange. 



galumay said:


> Roasting business is not something I would describe as marginal, unless there is something I am not aware of with scaling it up to that sort of size. (and I would expect that to improve the margins.)




I mean marginal as in returns approach cost of capital. I imagine it's a bit more capital intensive than running a franchise system too.

I need to do some more work on this.


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## galumay (27 October 2014)

McLovin said:


> I mean marginal as in returns approach cost of capital. I imagine it's a bit more capital intensive than running a franchise system too.
> 
> I need to do some more work on this.




Its always hard to work out in a vertically integrated business as well, because the transactions that take place in separate businesses are hidden within.

Green beans I buy as a small roaster for about $12KG, I am buying high quality boutique beans for artisan roasting, roasting for rubbish coffee like Gloria Jeans they would be paying in the region of $5-7KG (or less if they buy direct rather than through a wholesaler).

I sell my beans roasted for $40KG, allowing for moisture loss in roasting and all other costs margin is obviously very good. A cafe would be paying around $20KG if they were buying in bulk I expect, but of course in a vertically integrated business you don't see that transaction.

A kilo of coffee yields about 50 double shots allowing for wastage, so at $4 a cup thats $200KG return on your $7KG beans!

I know its very difficult to relate all of that to big business like RFG, and I know your point was more about the cost of capital and returns, but a roaster is not a very capital intensive thing, you need a warehouse, commercial roaster, a bagger and you are off and running.


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## Ves (28 October 2014)

McLovin said:


> Interesting. I guess the question then becomes, if the roasting business is so marginal why not just outsource it to someone else? With the volume they do I imagine they'd have some pretty strong pricing power over their supplier/s.



My opinion is that franchise systems are all about creating a customer experience that is of a consistent and easily recognised quality on a mass-scale.    To do this successfully there are a few important considerations:   the brand control needs be exercised by the franchise system owner (ie. RFG sets menu choices,  marketing, store layout, suppliers) and the individual franchises should be able to be run by anyone ("the any idiot can run it" rule).

RFG would most likely,  all other profitability considerations aside,  run their own coffee operations because it gives them absolute control over the different blends in their coffee brands (Michels,  Donut King etc) and allows them to control the customer experience to a higher level.


----------



## skc (28 October 2014)

Ves said:


> My opinion is that franchise systems are all about creating a customer experience that is of a consistent and easily recognised quality on a mass-scale.    To do this successfully there are a few important considerations:   the brand control needs be exercised by the franchise system owner (ie. RFG sets menu choices,  marketing, store layout, suppliers) and the individual franchises should be able to be run by anyone ("the any idiot can run it" rule).




Agree.



Ves said:


> RFG would most likely,  all other profitability considerations aside,  run their own coffee operations because it gives them absolute control over the different blends in their coffee brands (Michels,  Donut King etc) and allows them to control the customer experience to a higher level.




Not sure. You can get pretty good control without ownership I'd suspect.

P.S. Not a big coffee person (I think Nestle Instant Gold is pretty good) but surely no one goes to Donut King for a great coffee?!


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## finnsk (28 October 2014)

Ves said:


> To do this successfully there are a few important considerations:   the brand control needs be exercised by the franchise system owner (ie. RFG sets menu choices,  marketing, store layout, suppliers) and the individual franchises should be able to be run by anyone ("the any idiot can run it" rule).



All this is very good but the most important is that the franchises has to be profitable. Cannot help that the husband and wife team has to work somewhere else to get by day by day.


----------



## ROE (28 October 2014)

finnsk said:


> All this is very good but the most important is that the franchises has to be profitable. Cannot help that the husband and wife team has to work somewhere else to get by day by day.




Most RFG franchisee is very profitable, something like Donut King cost you little to setup but can earn you
6 figures income...you aren't going to have 1000s of stores if they aren't profitable, the words do get around
like Wendy ice cream you aren't going to have any franchisee if aren't profitable, some RFG franchisee own multiple stores cos they are so profitable.

The market price for scale of coffee roasting, most franchisee has to buy their products from nominated suppliers
as dictate by franchiser to control quality and to keep thing consistence 

in this case RFG going to supplies all of the coffee to all the franchisee, this scale will cost them less
to buy and roast, it can pass some of their saving to its franchisee or keep it to themselves.

RFG isn't the best coffee but it isn't the dog either, I am a coffee drinker and I buy my $35-$40/kg bucks fresh bean
from local roaster and when I am out and about I just grab a coffee at Michels or one of the RFG franchisee
it won't be the same as stuff I make at home but it is good enough for me.

the coffee snoop that only drink at boutique shop are small minority, the mass drink coffee at Michels and Donut kings and they ok with it and you aren't making big bucks selling stuff to minority, the mass market is where you have to target.

RFG aren't competing with small boutique coffee shop, they out to create a brand name for the mass to bring consistent quality to the mass, just like Macas and KFC and you certainly aren't going there for a quality meal but
you know what to expect when you do pop in.


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## ROE (28 October 2014)

skc said:


> P.S. Not a big coffee person (I think Nestle Instant Gold is pretty good) but surely no one goes to Donut King for a great coffee?!




Try it one day at Michels and Donut king it aren't bad as you think, some franchisee has some decent employee who can brew decent coffee and they taste pretty good.


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## ROE (26 November 2014)

I like their strategy very much, building a scale in coffee and that in a few years should be a very good moat.
Coffee is now entrench in Australian culture and RFG is the first to move to control this market

after this Di Bella Group acquisition they control around 13-15% of coffee market, move to 20% and they in a sweat spot


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## Wysiwyg (21 January 2015)

Notice out today about a J/V into China with the Gloria Jean's coffee franchise although a measly 20% interest retained by RFG. However my share purchase came about with the formation of what appears to be a symmetrical triangle pattern. Price today bumping up against resistance at the upper line.


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## Ves (12 February 2015)

Is there only an EGM because the assets they are acquiring (Di Bella / GJs) are required to be put forth as security on the bank loans (ie.  the acquired companies are technically giving "financial assistance" to RFG before they have been acquired / made subsidiaries)?

Or am I missing something here?    I don't believe I have seen an EGM re debt finance to fund an acquisition before....


----------



## galumay (12 February 2015)

Ves said:


> Or am I missing something here?    I don't believe I have seen an EGM re debt finance to fund an acquisition before....




I wondered exactly the same thing, I came to the conclusion that I simply hadnt owned shares in a company that had structured the aquisition in this way - which is what i understand lead to the need for an EGM.


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## ROE (12 February 2015)

Ves said:


> Is there only an EGM because the assets they are acquiring (Di Bella / GJs) are required to be put forth as security on the bank loans (ie.  the acquired companies are technically giving "financial assistance" to RFG before they have been acquired / made subsidiaries)?




Sound like it, too much complication these structure
I need to go for a run to clear the confusion I just read 

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s260a.html

I just want a business that supply/sell coffee and cake and pocket a few bucks here and there 
and pay me my dividend every 6 months


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## galumay (12 February 2015)

ROE said:


> I just want a business that supply/sell coffee and cake and pocket a few bucks here and there
> and pay me my dividend every 6 months




if only life were that simple!!


----------



## ROE (12 February 2015)

galumay said:


> if only life were that simple!!




My life is simple, it just my investment that give me headache and confusion every so often


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## Wysiwyg (19 February 2015)

Wysiwyg said:


> However my share purchase came about with the formation of what appears to be a symmetrical triangle pattern. Price today bumping up against resistance at the upper line.



 Another sell wayyy too soon at $6.28. Starting to pee me right off.  The ASX surge has continued to sweep many stocks along. RFG breakout update.


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## ROE (25 February 2015)

Another year another dividend increase many times better than inflation, it is its 17th times bi-annual increase back to sleep and collect more divi


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## galumay (25 February 2015)

ROE said:


> Another year another dividend increase many times better than inflation, it is its 17th times bi-annual increase back to sleep and collect more divi




Yes, this company is turning into the star of my SMSF, very impressed.


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## TPI (3 June 2015)

Any thoughts on the latest strategic update?

I thought it was good, though the market disagreed!

Focus on quality of network rather than an over-sized network.

Consolidate acquisitions, cut losses and rationalise under-performing areas.

Coming clean early on where things haven't quite gone to plan and taking immediate action seems like good management to me.

And international expansion, through JVs or similar lower-risk avenues.

Along with a management restructure to give appropriate attention to the different parts of the business, with additional non-executive directors being added soon.

Seems like a good strategy to me given tough domestic retail conditions and the AUD dollar.

Admittedly the share price got ahead of itself going to $8, but it's still well above the recent SPP price.


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## ROE (3 June 2015)

I think small cap just going through a mini correction,  just another trough in the journey 
keep calm, pocket dividend and eat Michel cake and drink Di Bella Coffee 

I thought their market update is ok too, coffee is a good business and growing in popularity

they cant go much wrong expanding this market and take control, I drink from boutique coffee shop and Di Bella Coffee bean is pretty good, a few shop I drink from get their bean from Di Bella.

Keep going down a bit more and I get some shares for my kids


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## TPI (4 June 2015)

ROE said:


> I think small cap just going through a mini correction,  just another trough in the journey
> keep calm, pocket dividend and eat Michel cake and drink Di Bella Coffee
> 
> I thought their market update is ok too, coffee is a good business and growing in popularity
> ...




Thanks ROE, yeah still has a good dividend yield and dividend growth has been good historically.


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## galumay (4 June 2015)

TPI said:


> Thanks ROE, yeah still has a good dividend yield and dividend growth has been good historically.




Also its well above the SPP price, I am sure we will see another spurt in price when it next reports!


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## JTLP (5 June 2015)

Was tempted to buy in but still seems to be getting hammered. Good yield though. 

Was is the flat retail and declining food sales for April that are triggering this? Or a bigger player moving out?


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## skc (5 June 2015)

JTLP said:


> Was tempted to buy in but still seems to be getting hammered. Good yield though.
> 
> Was is the flat retail and declining food sales for April that are triggering this? Or a bigger player moving out?




I didn't read the annoncement in detail.. but my understanding is that there is an ~$18m write off associated with some stores and franchise operations. That's a meaningful chunk of full year NPAT and the market isn't sure whether it's a true one-off or it's representing something larger at play. Afterall, if things are swimmingly well, you don't do writedowns.

The odd failed Gloria Jane transaction (see a few posts back) is also at the back of my mind... may be there was something a bit funny??

I have been trading it on the short side pretty good in the last few days... but I think the selling is mostly done now.


----------



## Ves (5 June 2015)

skc said:


> I didn't read the annoncement in detail.. but my understanding is that there is an ~$18m write off associated with some stores and franchise operations. That's a meaningful chunk of full year NPAT and the market isn't sure whether it's a true one-off or it's representing something larger at play. Afterall, if things are swimmingly well, you don't do writedowns.
> 
> The odd failed Gloria Jane transaction (see a few posts back) is also at the back of my mind... may be there was something a bit funny??
> 
> I have been trading it on the short side pretty good in the last few days... but I think the selling is mostly done now.



Agree.   The $18mil  is write-off is suspicious and very poorly explained  (actually a lot of their presentations are filled with jargon).   I'm not sure how to read it.   It seems like an admission that there is a lot of duplication in the company after the buying spree of the recentyears.   There's a line of thought in my head along the lines of:  It is OK to make an acquisition at its fair value (or less)  but if it has some assets within it that you already have in your existing operations then it is almost undeniably worth less to you. Seems simple,  but a lot of companies fail on this count.

Also in the presentation there is a very noticeable spike in store closures.  Some as part of the acquisitions.   Apparently this doesn't affect earnings, because there stores are at break-even.    The big question is:   when did they become break-even?   Were they always break-even,  or is this part of the earnings cycle (and new growth has so far covered the gap),  and if it's part of the earnings cycle,  and the economy gets worse,  how many more under-performing / break-even / loss-making franchises will turn up?    Franchise operators need scale to maintain high margins.   If they're closing stores too often then fixed costs grow as a % of revenue and earnings slide very quickly.  Maybe current earnings are closer to peak than a fair representation of the whole cycle.

Also thinking that _initial growth_ overseas isn't as cheap as in Australia because you need to build a fixed cost base to run the business. They have some of it done.  But I bet there's a lot more to do if they want to ramp up the franchise outlets.  Failure is pretty costly as most businesses have found out.  

Probably a bit more risk in the stock now,  especially as there are many more moving parts.   Looked like it was pushing the limitations of fair value at $7 any way.  You'd need either a low required return or large amounts of profitable growth to arrive at that value.


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## Wysiwyg (7 June 2015)

Consumer discretionary (discretion :- choice, option, preference, disposition) stocks can be affected by economic circumstances. Cake and coffee might be a luxury for better employment and wage growth times. From a chart perspective, RFG was driven precisely to $8 before gradually deflating toward the last 3 days of steep decline. I read of "smart money" and though not convinced, this steep price decline looks like one of those induced share selloffs. There may be further bad news and good reason to get out but only time will reveal if this is so. 

Previous significant support was at $5.33 (green line) which could (I don't know) be an area of support and a supply exhaustion happened at $5.37 on Friday before a buy up to $5.50 which could become resistance. Next supp. at $5.16 (lower green line). The weekly +19% price range down was in the top 5 highest of RFG's history.


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## galumay (7 June 2015)

From a fundamental viewpoint I think they ran well ahead of IV, the general fall in the market conspired with the concern about the future earnings and concern about write downs recently announced to bring the price back. As mntioned its still well above the recent SPP price and as long as the next update shows growth, revenue and earnings on track I would expect it to recover lost ground.


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## McLovin (9 June 2015)

Ves said:


> Agree.   The $18mil  is write-off is suspicious and very poorly explained  (actually a lot of their presentations are filled with jargon).   I'm not sure how to read it.   It seems like an admission that there is a lot of duplication in the company after the buying spree of the recentyears.   There's a line of thought in my head along the lines of:  It is OK to make an acquisition at its fair value (or less)  but if it has some assets within it that you already have in your existing operations then it is almost undeniably worth less to you. Seems simple,  but a lot of companies fail on this count.
> 
> Also in the presentation there is a very noticeable spike in store closures.  Some as part of the acquisitions.   Apparently this doesn't affect earnings, because there stores are at break-even.    The big question is:   when did they become break-even?   Were they always break-even,  or is this part of the earnings cycle (and new growth has so far covered the gap),  and if it's part of the earnings cycle,  and the economy gets worse,  how many more under-performing / break-even / loss-making franchises will turn up?    Franchise operators need scale to maintain high margins.   If they're closing stores too often then fixed costs grow as a % of revenue and earnings slide very quickly.  Maybe current earnings are closer to peak than a fair representation of the whole cycle.
> 
> ...




Great post, Ves.

I'm finding it difficult to make top and tail of these guys. The growth seems to _all_ be coming from new stores, excluding coffee which does seem to have some SSS growth. The store closures are an issue in this regard because without new stores revenue growth would be CPI at best. Having an $18m write off tucked away as a single bullet point on page 23 of a 28 pager is also a bit worrying. I don't really buy this whole international expansion, or more properly I wouldn't pay anything for their international expansion. Valuation wise it's not super expensive if it pulls in the $55m they claim they will this year and they can make big gains in GJs in the next few years, but at the same time it's not really cheap enough to get me interested to really dig deep.

I reckon their pizza business is getting killed by Dominos. DMP SSS for the half 10.6%, RFG QSR 1.2% (EBITDA/store is going backwards too). Remember that was going to be next big thing for them a few years ago?


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## Ves (27 August 2015)

Outside of the new acquisitions,  the results of previously held franchise system results look very week to me.   They're going backwards.  

Management have been buying up to drive profit growth,   but the balance sheet is starting to get a bit stretched  (ie.   they'll have to raise capital to continue buying up*).

I'm starting to think they have limited organic growth opportunities.   Even the QSR buzz they were talking up seems to have come to a stand-still.

*As a side note,  they are a serial diluter of retail holders every time they raise capital.


----------



## Ves (27 August 2015)

Forgot to disclose,  I'm out as of this afternoon.


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## McLovin (27 August 2015)

Ves said:


> Outside of the new acquisitions,  the results of previously held franchise system results look very week to me.   They're going backwards.
> 
> Management have been buying up to drive profit growth,   but the balance sheet is starting to get a bit stretched  (ie.   they'll have to raise capital to continue buying up*).
> 
> ...




You pretty much wrote, verbatim, what I would have.

I'd also note that EPS growth was actually negative. What they called "Basic EPS" in their prezzo was actually underlying EPS with asset impairments and "brand realignment" (was it you Ves who said they like lofty language?) added into the mix EPS was 22.5c/share.

The debt is a bit of a concern to be honest, even more so when they talk about $70m in headroom, which leads me to think they're quite happy to keep using debt. Tangible assets are a handful of PP&E and WC. 

Not one for me.


----------



## Ves (27 August 2015)

McLovin said:


> You pretty much wrote, verbatim, what I would have.
> 
> I'd also note that EPS growth was actually negative. What they called "Basic EPS" in their prezzo was actually underlying EPS with asset impairments and "brand realignment" (was it you Ves who said they like lofty language?) added into the mix EPS was 22.5c/share.
> 
> ...



Yep,  "brand realignment" and "restructuring"  aren't one-off costs in these businesses.   They are costs of doing business for franchise operators IMO.  To add them back is a bit dishonest if you ask me.  

Agree with your comments re the debt,   they won't pay it down,  this company listed on the ASX to build an empire of franchise systems,  they certainly won't stop doing that.   If anything it has been accelerating,  which makes it really hard to find the _real_ cash flow of the underlying business.

If they can't add organic outlet / franchise fee growth to their acquisitions then they aren't really creating any value for existing shareholders IMO.

The business model is much closer to something like GXL than I initially anticipated.


----------



## galumay (27 August 2015)

While I dont disagree with what you guys point out with their core business operations, the coffee division is exploding, if they can maintain that sort of growth maybe they will drop off the fast food stuff and just concentrate on coffee.

If they can really be a force in the Chinese coffee scene - which is simply exploding as the middle class develop a taste for it - then there is a lot of potential.

I am continuing to hold for the time being.


----------



## finnsk (7 September 2015)

This is good explanation why I think this is not a share to hold, don't think there is many franchises within Michell's Patisserie, Gloria Jeans etc there is making a good profit unless they are working 60-70 hours per week 52 weeks a year.

I Know of a franchise chain that have weekly fees of head office and advertising fees etc of more that 10%, it is like your broker charges 10% or more of your turnover not profit.

http://www.couriermail.com.au/news/...ning-a-franchise/story-fnihslxi-1227514066454


----------



## galumay (25 February 2016)

What a stellar half year for RFG, the coffee business has exploded, I suspect RFG will get a significant re-rate on the back of these numbers.


----------



## Ves (25 February 2016)

Existing franchise systems  (DK,  MP, BB,  QSR etc) still look like they are going backwards to me.

The problem is there still doesn't look like there is much, if any, organic growth.  It's all acquired growth and at the moment it's making the accounts look better than they are.

The true intrinsic value in this business is driven by organic growth because expanding an existing franchise base requires little additional capital and generates high incremental ROIC.

It seems to me that the bigger RFG gets,  the less the multiple arbitrage there is on new acquisitions (especially with a lower share price) and they're having to use more debt because the cost of equity capital is suddenly higher.   This trend started with the QSR acquisition. The acquisitions need to be bigger and bigger to materially move the bottom line (like any roll-up).


----------



## McLovin (25 February 2016)

Ves said:


> The problem is there still doesn't look like there is much, if any, organic growth. It's all acquired growth and at the moment it's making the accounts look better than they are.




Also note they strip out "acquisition integration and restructuring costs" to get to their definition of underlying profit. I know we discussed this up thread, but given the way this business grows these really are, imo, a cost of doing business.



Ves said:


> The true intrinsic value in this business is driven by organic growth because expanding an existing franchise base requires little additional capital and generates high incremental ROIC.




That's it, and this business has never had that. SSS for their pizza business is going backwards, no doubt Dominos is the dominant factor there. But the rest of their businesses are pretty much just growing at CPI. A few years ago pizza was going to be their big thing, then that didn't work as well as expected so they moved on to coffee.


----------



## ukulele (26 August 2016)

Well the market certainly liked the figures released yesterday. Interested to know what the fundamental guys think about the results and the latest acquisition. 

technically speaking though looks like a classic breakout.


----------



## galumay (26 August 2016)

I havent run the numbers for RFG this season yet, the acquisition looks to be very good, the vertical integration is going to be valuable. Coffee booming, Pizza doing better than i expected. Will post back when I have more detailed analysis - its a pretty busy time for us FA's!


----------



## Triathlete (26 August 2016)

ukulele said:


> Well the market certainly liked the figures released yesterday. Interested to know what the fundamental guys think about the results and the latest acquisition.
> 
> technically speaking though looks like a classic breakout.





Have to agree the breakout through $6.00 looks good...sitting on some nice profit so far with a dividend to come....






Last Updated: 26 August 2016

RFG is a Star Growth & Income Stock  that suits growth and income investors. The company has recorded strong improvements since reporting in February and we continue to believe that with strong organic growth and potential acquisitions the company will be able to meet our Star Growth Stock criteria into the future.

A current holding in the stock should be part of a well diversified portfolio should you be a growth focused investor. The franchise model has seen improvement in the last period and we expect this to further benefit if the soft commodity prices for coffee improves over the period.

Lincoln valuation $6.85

Consensus valuation $5.95

14 day free trial....www.lincolnindicators.com.au

Cheers
Triathlete


----------



## ukulele (16 September 2016)

RFG looks increasingly bullish with strong volume past the div.


----------



## galumay (16 September 2016)

ukulele said:


> RFG looks increasingly bullish with strong volume past the div.




Yep, closed at $7 today, seems only days ago we were looking at $6! One of my better performers in the SMSF.


----------



## Tightwad (16 September 2016)

missed the boat on this one, something in the books i didn't like when i looked into it last time


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## galumay (17 September 2016)

Tightwad said:


> missed the boat on this one, something in the books i didn't like when i looked into it last time




Yes, it was one of those businesses that took a bit of faith to get into. I worried about whether they were just another rollup model, keeping the numbers growing with endless acquisitions. I think we are seeing now that there is more to the story than that and management seem to have steered a sensible course.


----------



## So_Cynical (17 September 2016)

Dont often see me hindsight post but im happy i added RFG to the super portfolio in Sept 2015, been a stellar run up from that bottom, i can sell late next week and get the CGT discount...mite hang on for a while longer.


----------



## Miner (18 September 2016)

yeah
I am also  a happy holder of RFG. It gave me 25% up compared to severe losses I got from  IPH, MYR and few others . I will hold it in super for a while.


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## ukulele (22 September 2016)

I do worry about companies that seem to inflate growth by never ending acquisitions. What ends up happening is that management end up paying too much for assets; recently burned by GEM but many historical instances of this happening. Hopefully long term management has their heads screwed on right. Still some strong buying today to new yearly highs.


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## Muschu (4 March 2017)

Any current interest in RFG among ASF posters?  Seems to have an excellent track record and fundamentals.  Then we get what seems to be a good announcement on 23/2 with a rise to $6.54- and an increased dividend - and I bought in at $6.14. But a plunge began on 24/3 and continued for 4 days to $5.44 - with large volumes slowly decreasing.  Possibly some stability over the last few days but that could change tomorrow.  
And I added at $5.50, something I would not usually do.
There is considerable discussion on another forum suggesting very significant shorting by UBS, a major investor.
Any thoughts on this movement?


----------



## galumay (5 March 2017)

I dont take any notice of what Mr Market does, but I am a long term holder of RFG, I believe its a great business and happy to continue to hold. I dont think you will go wrong taking a position at your averaged price in the long run. Their coffee business may prove to be the core business going forward.


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## Muschu (5 March 2017)

Hearing this from someone with your level of expertise is very helpful galumay. I don't post a great deal but do read ASF very regularly.  Most, not all, posters on the other forum seem to be of your view.


----------



## galumay (5 March 2017)

Muschu said:


> Hearing this from someone with your level of expertise is very helpful galumay.




My level of expertise is neophyte! I do put a lot of effort in to trying to understand the businesses I am looking at investing in, but for levels of expertise there are many others here far in advance of my humble skills. People like ROE, Craft, Value Collector, skc, So_Cynical, Ves, McLovin (in no particular order!) have real expertise and I am constantly learning from their contributions here.

If there was a concern I hold with RFG its understanding how much of the apparent growth is dependent on the 'roll up' strategy and how much organic growth is left when you remove that. Its not something I have got a confident grasp of, but its in the back of my mind when I think about RFG. As a commercial roaster myself I understand the business and the margins, and I suspect that in time coffee may become the sector of this business that really drives its success.


----------



## Muschu (5 March 2017)

Let me put it this way galumay... You have more expertise than me!!

But if any of the others you mention care to contribute that would be very welcome.


----------



## Tightwad (5 March 2017)

seems to be tracking ok, but i can't help but think a lot of their franchises are ripe for disruption.  maybe it's not be an issue in the less trendy food courts but new coffee shops sre everywhere, donut king isn't krispy kreme etc.


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## So_Cynical (5 March 2017)

I think i sold a few at around $7 a few months ago, current level looks to be about the place to be buying.


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## skc (5 March 2017)

Muschu said:


> There is considerable discussion on another forum suggesting very significant shorting by UBS, a major investor.




Shorts don't seem to have changed a great deal in the past month. If UBS was going hard shorting then perhaps someone else was covering.
http://www.shortman.com.au/stock?q=RFG

I didn't look at RFG's report in great detail, but on first glance it appeared in line with expectations. One of the key issues in the past for RFG was putting certain costs into the "one-off" bucket which the market doesn't always agree.  That seems to be absent in the last 2 reports. The downward share price movement really only lasted 3 days with ~10m volume. So perhaps a holder took the opportunity to reduce/exit their exposure. I wouldn't be too concerned on that alone, provided that you did your homework on the latest report.

One key thing about RFG is that it has a portfolio of franchise brands. It is a roll-out as much as a roll-up model. So even though some of the same store sales growth looks pretty low, they can still roll out more stores thanks to cheap capital from would-be franchisees. However, 
I also think that RFG will continue to roll its portfolio of brands. There's a fair bit of what's trendy/fashionable in the fast service food industry. Certain brands will mature and stabilise... and some might shrink and become a drag. RFG will need to be careful about how they manage these changes. Every now and then they are likely need a bit of cost to rejuvenate a brand, or close down underperforming ones. The management will call them one-off's but the market knows that they are more like costs that are on 3-5 year cycles.

Lastly, there's a bit of negative headwinds in the franchising industry - wage increases, wage frauds etc. So it might turn some investor away, or turn some would-be franchisees away and actually impact the business.


----------



## Knobby22 (6 March 2017)

he last point is what I am worrying about. I reduced my holdings by half and am expecting some announcement in this field. the franchising industry appears very corrupt at present. The latest findings related to Dominos just shows what it's like. There may be little or nothing though as RFG seem to have very good management and most of their businesses don't run on the smell of an oily rag like 7-11 and Dominos.


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## Muschu (24 March 2017)

Knobby22 said:


> he last point is what I am worrying about. I reduced my holdings by half and am expecting some announcement in this field. the franchising industry appears very corrupt at present. The latest findings related to Dominos just shows what it's like. There may be little or nothing though as RFG seem to have very good management and most of their businesses don't run on the smell of an oily rag like 7-11 and Dominos.




Well yesterday RFG hit $5.13 and UBS is in and out of being a substantial holder on a very frequent basis.... On a stock that has plummeted since announcing a record profit and increased dividend.

I don't really understand shorting but know that some think it a great vehicle to make money [at the expense of the small investor].  

Surely this can only go so far and be permitted to go so far?


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## galumay (24 March 2017)

Muschu said:


> I don't really understand shorting but know that some think it a great vehicle to make money [at the expense of the small investor].
> 
> Surely this can only go so far and be permitted to go so far?




Shorting only makes money at the expense of the small investor when the small investor makes poor decisions - just like going long makes money at the expense of small investors. 

Shorting actually has some stabilising effects on markets in times of severe distress. 

I dont believe there is any need for controls or limits on short selling beyond those that exist now.


----------



## Muschu (24 March 2017)

galumay said:


> Shorting only makes money at the expense of the small investor when the small investor makes poor decisions - just like going long makes money at the expense of small investors.
> 
> Shorting actually has some stabilising effects on markets in times of severe distress.
> 
> I dont believe there is any need for controls or limits on short selling beyond those that exist now.




So small investors are expected to anticipate shorting?   Anyone on ASF never made a "poor decision"?  
There are many other factors at play here imo.... I have frequently bought well performing stocks with strong fundamentals.... And not had this happen.

Of course people win and others lose - nature of the game.  But manipulation by big players is quite different.


----------



## Klogg (24 March 2017)

Muschu said:


> So small investors are expected to anticipate shorting?   Anyone on ASF never made a "poor decision"?
> There are many other factors at play here imo.... I have frequently bought well performing stocks with strong fundamentals.... And not had this happen.
> 
> Of course people win and others lose - nature of the game.  But manipulation by big players is quite different.




_So small investors are expected to anticipate shorting?   Anyone on ASF never made a "poor decision"? _
No, but investors are expected to know that volatility in price is a given. Find me one company that has had a constant increase in share price, without volatility.


_Anyone on ASF never made a "poor decision"? _
I've made plenty. So have others. I really don't think this is what Galumay is getting at.


_But manipulation by big players is quite different._
Manipulation is often quoted as the reason for the change in share price, but it's likely not the case.

What if a larger holder, say a fund manager, has had a large amount of redemptions and they need to sell some holdings? So they sell on market, and the price changes. There are so many factors that can impact the price, and this is but one example.

I can't speak for traders, but as an investor, all I'm looking at is the amount of cash that is generated and when. The price eventually follows (up or down), and these small changes in price don't matter.


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## Muschu (24 March 2017)

I'm not stressed about RFG and do accept volatility but see manipulation rather differently.

I also get what you are saying about the fund manager "need".  Does this explain why UBS are in and out of being a major investor, so many times recently, as indicated by RFG announcements?


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## Klogg (24 March 2017)

Muschu said:


> I'm not stressed about RFG and do accept volatility but see manipulation rather differently.
> 
> I also get what you are saying about the fund manager "need".  Does this explain why UBS are in and out of being a major investor, so many times recently, as indicated by RFG announcements?




Having done some work for UBS' custody and registry provider, I can honestly say that the left hand doesn't know what the right hand is doing. 
They have a fair few funds, and could be selling down in one and buying in the other. It sounds silly, but it happens - alot.

It's hardly manipulation, just the result of each fund adjusting its weighting in the company so they can hug the index to an appropriate level.


A little off topic, but the part that rubs me the wrong way is when one fund buys another, and each is charging a percentage of Assets under management along the way. Multiple commissions for nothing.


----------



## skc (24 March 2017)

Muschu said:


> I'm not stressed about RFG and do accept volatility but see manipulation rather differently.
> 
> I also get what you are saying about the fund manager "need".  Does this explain why UBS are in and out of being a major investor, so many times recently, as indicated by RFG announcements?




Manipulation is manipulation, shorting is shorting. A shorter may be manipulating, just as a buyer may be trying the manipulate the share price. Take a look at the short's interest chart of the last 3 years for RFG. You can see that sometimes the shorters get it wrong (like Jan 2016), sometimes the shorters get it right.

http://www.shortman.com.au/stock?q=RFG



Klogg said:


> Having done some work for UBS' custody and registry provider, I can honestly say that the left hand doesn't know what the right hand is doing.
> They have a fair few funds, and could be selling down in one and buying in the other. It sounds silly, but it happens - alot.
> 
> It's hardly manipulation, just the result of each fund adjusting its weighting in the company so they can hug the index to an appropriate level.
> ...




Interesting... I didn't know you work for/at/with UBS?! I've always thought that UBS is a prime broker and it holds stock on behalf of various clients/instos so not all transactions are their own decision. Plus they lend out stocks which get returned from time to time, thereby changing their holding %. Please correct me if I am wrong.

With respect to funds owned by the same umbrella playing pass-the-parcel... it's a bit of a joke I agree. Macquarie used to be quite good at those. I also think that it creates an artificial valuation perception in the market... so next thing you know a completely independent 3rd party would buy an asset at similar valuations, thereby validating all the previous internal transactions.


----------



## Muschu (24 March 2017)

Certainly agree that Klogg's post is interesting... I've not sold RFG but hoping the readjustment [bit of semantics here] will end soon.

Words are so interesting... I have a close relative who is extremely rich [hundred of millions] and into creating "inter-generational wealth" [meaning for his very immediate family]... I'd say excessively wealthy to the point where money is life's key purpose... However apparently the preferred term is "high end wealth"...


----------



## Klogg (24 March 2017)

skc said:


> Interesting... I didn't know you work for/at/with UBS?! I've always thought that UBS is a prime broker and it holds stock on behalf of various clients/instos so not all transactions are their own decision. Plus they lend out stocks which get returned from time to time, thereby changing their holding %. Please correct me if I am wrong.
> 
> With respect to funds owned by the same umbrella playing pass-the-parcel... it's a bit of a joke I agree. Macquarie used to be quite good at those. I also think that it creates an artificial valuation perception in the market... so next thing you know a completely independent 3rd party would buy an asset at similar valuations, thereby validating all the previous internal transactions.




UBSGAM use NAB's Asset Servicing division for their custody and registry services. (Renewed the contract a few years ago):
http://www.theinstoreport.com.au/articles/ubsgam-extends-nab-asset-servicing-contract

I worked there (Asset Servicing) for a long while - sadly on a project to upgrade their unit registry software which did not go well. Years of software and infrastructure design down the drain because of bad vendor agreements...

After that project went bad, I moved on to other work. Then they announced that OneVue were taking over their unit registry, which did not surprise me at all. Low margin business that was largely manual (killing economies of scale) finally reached its inevitable death.


_"I've always thought that UBS is a prime broker and it holds stock on behalf of various clients/instos so not all transactions are their own decision."_

It takes positions on behalf of clients, but I believe it must go through a 3rd party (custodian) for regulatory reasons.


_"Plus they lend out stocks which get returned from time to time, thereby changing their holding %. Please correct me if I am wrong."_

100% right on this one.


----------



## So_Cynical (6 April 2017)

Trading under 5.10 today, closing in on a new 52 week low, 5 year chart shows a lot of price action around the 4.40 mark, closing in on the bottom trend line as well.
~


----------



## Knobby22 (6 April 2017)

I sold half a month ago and since have bought them back at present prices.
I can't see them dropping much more.


----------



## skc (21 June 2017)

skc said:


> I didn't look at RFG's report in great detail, but on first glance it appeared in line with expectations. One of the key issues in the past for RFG was *putting certain costs into the "one-off" bucket *which the market doesn't always agree.  That seems to be absent in the last 2 reports. The downward share price movement really only lasted 3 days with ~10m volume. So perhaps a holder took the opportunity to reduce/exit their exposure. I wouldn't be too concerned on that alone, provided that you did your homework on the latest report.
> 
> One key thing about RFG is that it has a portfolio of franchise brands. It is a roll-out as much as a roll-up model. So even though some of the same store sales growth looks pretty low, they can still roll out more stores thanks to cheap capital from would-be franchisees. However,
> 
> Lastly, there's a bit of negative headwinds in the franchising industry - wage increases, wage frauds etc. So it might turn some investor away, or turn some would-be franchisees away and actually impact the business.




Here's the profit downgrade... and back to the old trick of one-off writedowns. $22m marketing investment written off...


----------



## icemanmelb (21 June 2017)

Also the CEO "retires" & Leverage goes from 1.6x to 2.0x


----------



## So_Cynical (22 June 2017)

So_Cynical said:


> Trading under 5.10 today, closing in on a new 52 week low, 5 year chart shows a lot of price action around the 4.40 mark, closing in on the bottom trend line as well.
> ~
> View attachment 70629




$4.50, got to that bottom trend line...


----------



## galumay (29 August 2017)

AR released today, not the best of outcomes, coffee didnt perform as well as I expected and overall there isnt much going on if you strip out the acquisitions so Hudson will have to provide some levered advantage to the organic growth going forward. 

I will probably stay invested, but I think it has to be watched carefully.


----------



## Value Hunter (29 August 2017)

I really do not like the management and directors of RFG, they seem overly promotional. 

They keep focusing on underlying earnings (and also EBITDA) as if the restructuring, re-branding and acquisition costs they incur almost every year (or so it seems) are not a normal cost of doing business!

The reported earnings are usually worse than the "underlying earnings" for RFG. 

They forecast "underlying earnings growth of 6% for FY2018. I wonder how much the official/reported earnings growth will turn out to be? Even if they hit 6%, given all the risks and empire building going on its hardly enough to compensate for all the risks. They are trying to mask a deterioration in underlying performance through acquisitions and aggressive store roll outs. I think its a stock to be avoided.


----------



## ukulele (9 December 2017)

rfg is going to get smashed again monday:
http://www.theage.com.au/business/r...ustralias-franchise-king-20171207-h00lbl.html

after experiencing first hand how hard franchise can be, I can't believe I bought into RFG. Our family used to run a Nando's and let me tell you, all the stories in that article were our experience. Adele has been on a mission the past couple of years, I also hope she investigates Nando's because it's daylight robbery.


----------



## So_Cynical (10 December 2017)

ukulele said:


> rfg is going to get smashed again monday:
> http://www.theage.com.au/business/r...ustralias-franchise-king-20171207-h00lbl.html




Yikes! thats a shocker.


----------



## greggles (10 December 2017)

ukulele said:


> rfg is going to get smashed again monday:
> http://www.theage.com.au/business/r...ustralias-franchise-king-20171207-h00lbl.html




You can't ask for worse publicity than that. Some very sad stories of financial devastation there. I've always been skeptical of the franchise model and this is just more evidence that while in some instances it can work, it can be botched very badly too with terrible consequences.

RFG is going to get punished in the short term.


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## basilio (10 December 2017)

The Franchise model is like many elements of a poorly regulated  capitalist economy. 

In concept  a Franchiser with a good product, well sorted out management systems, good overall marketing and cost effective supply of products to franchisees can establish an excellent win-win situation.  The franchiser expands his overall business and gets a cut from each franchise while the new players  get a well sorted cookie cutter business that gives them a fair return for their investment and work.

Unfortunately...  the system has just become a rort aimed at  screwing would be small businesspeople to the wall. That report on RFG highlights how ruthless and greedy the aggregated franchise model can be. 

But that's business when the greedy ferals are let loose. 

(IMV the Retirement Villages,  Holiday clubs etc are similar creatures.  Conceptually good ideas for win/win outcomes but wide open to greed.)


----------



## sptrawler (10 December 2017)

basilio said:


> The Franchise model is like many elements of a poorly regulated  capitalist economy.
> 
> In concept  a Franchiser with a good product, well sorted out management systems, good overall marketing and cost effective supply of products to franchisees can establish an excellent win-win situation.  The franchiser expands his overall business and gets a cut from each franchise while the new players  get a well sorted cookie cutter business that gives them a fair return for their investment and work.
> 
> ...




Somewhat like "Green incentives", not much difference, just depends which camp your in.


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## ukulele (11 December 2017)

lol, down over 20%. 

I agree, the franchise model "in theory" is a good concept. But what I have seen with Nando's is that head office control everything. They make money on sales but they make the cost of goods so expensive; which is the opposite of the theory of big buying power. 

You get punished on mystery shopper wait times but if you go to a head office store it is no different. Head office were pressuring us to basically walk away, so then they can take over a store for free then on sell it for pure profit.


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## greggles (11 December 2017)

RFG has dived down below what appears to be support at $4, which it has managed to stay above for more than four years. Next support level appears to be $3 which served as resistance from September 2009 to September 2012.

With all the negative sentiment surrounding it, RFG could have further to fall in the short term. I can't see it gaining much traction given recent media reports.


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## greggles (11 December 2017)

Interesting article from Motley Fool recommending RFG as a buy at about $5.50 in February this year.

https://www.fool.com.au/2017/02/28/...d-group-limited-is-a-buy-at-this-share-price/

Interesting also that UBS had a price target on it of $5.70 at the time.

Fortunes can change so quickly.


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## Garpal Gumnut (11 December 2017)

I've never been a fundamentalist. But for what it's worth the suite of businesses that RFG runs, it can be picked off with low rental costs by similar stores in North Queensland and deliver a better lower priced product. One example is Brumby's. I can buy a better pie ( with peas which Brumby's don't do ) at 3 adjacent small strips to the local Brumby's in large shopping centres near me.


----------



## kid hustlr (18 December 2017)

Stock is still getting carted. Any fundamentalists with interests down here or just all in the too hard basket?


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## Knobby22 (18 December 2017)

Just looks terrible.
Too many risks. - owing employees, zombie stores, etc.
I am sure though that if you can pick the bottom you may do well but that may be six months away.


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## greggles (19 December 2017)

The RFG slide continues. Down another 8.3% so far this morning and looking weak. While the company has tried to publicly tackle the negativity surrounding it, it seems to be an almost impossible task. A trading update released this morning has further disappointed the market. 1H18 Statutory NPAT is currently expected to be c.$22.0m, compared to 1H17 NPAT of $33.5m.


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## greggles (19 December 2017)

The intraday carnage continues. Down 20.75% to $2.10 today. RFG is now at levels not seen since August 2009.


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## notting (19 December 2017)

Seem to be taking a bit of the wind out of retailers in general today, like DMP maybe worth taking advantage of that.
The franchise model really is kind of hard to understand you have basically two parties competing against each other trying to profit from the same shop.


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## Country Lad (19 December 2017)

notting said:


> The franchise model really is kind of hard to understand you have basically two parties competing against each other trying to profit from the same shop.




3 actually, don't forget the landlord


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## finnsk (19 December 2017)

Country Lad said:


> 3 actually, don't forget the landlord



Yes but only the franchisee doing the work


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## greggles (20 December 2017)

Down another 10% so far today. Ouch. Things are looking grim for RFG.


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## greggles (20 December 2017)

Utter disaster for RFG. From $4.41 to $1.625 in eight trading days. Volume really started to pick up yesterday after the release of the company's Trading Update. The big question now is, how close are we to the bottom? Given the trading in recent times, I certainly wouldn't want to jump onto this train wreck anytime soon.


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## notting (21 December 2017)

Looks more like a raid than a short squeeze going aggressively up by 35%.
Although we are in amateur hour with a lot of pros already at picnics and booze ups into Partymas.


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## So_Cynical (21 December 2017)

greggles said:


> Given the trading in recent times, I certainly wouldn't want to jump onto this train wreck anytime soon.




Massive bounce today up to $2.20 intraday, $1.63 was total overkill, i tried to buy some today @ $1.58.
~


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## kid hustlr (21 December 2017)

Incredible price action. I have a small interest in this as someone I respect considers this a bit of an opportunity on a longer scale - as such I'm following with interest as morale support give his position.

It's interesting to see how it plays out. The media coverage has been ripe for several weeks on this and reading the articles I get really skeptical at the possible agendas behind the scenes.

Articles about management needing to 'protect the shareholders' and protect the mum and dad store owners, yet they are interviewing fund managers who have huge short positions. Will they interview these managers in the week to come when they have covered their position?

Another example for me about needing to always 'play my own game' and know my style but boy it's been a violent week and for the longer termers who are able sit through these types of moves I applaud.


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## notting (21 December 2017)

I seen Farifax media, especially via fin review, do this kind of ramp down media speculation at this time of year before! 
This one was an absolute cracker.  
I suspect they got wind of the revenue downgrade before it was announced and got their buddies in too!
When they used to attack Renie Rivkin who died of stress due to insider trading, he used to say, 'there is enough room for both of us!' as an olive branch tying to shut them up!!


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## pixel (22 December 2017)

notting said:


> I seen Farifax media, especially via fin review, do this kind of ramp down media speculation at this time of year before!
> This one was an absolute cracker.
> I suspect they got wind of the revenue downgrade before it was announced and got their buddies in too!
> When they used to attack Renie Rivkin who died of stress due to insider trading, he used to say, 'there is enough room for both of us!' as an olive branch tying to shut them up!!



Try shutting up the "Free Press"? 
Look what good that did him. Poor old Rene. R.I.P.

Meanwhile, RFG continues on its merry ways, much to the dismay of the Shorter Brigade.


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## notting (22 December 2017)

I shorted it down to 1.76, then went long, bought up to and including 1.755, 1.77, 1.78, 1  1.81, .  Just sold that at 2.42 
It's a love hate relationship.

I actually really like The Age 'Markets Live' Blog.  It's a great service.
I think the papers should offer a pay per view service. this might help them rather than offering lock in contracts for the rest of the **** that they write.


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## Knobby22 (22 December 2017)

notting said:


> I shorted it down to 1.76, then went long, bought up to and including 1.755, 1.77, 1.78, 1  1.81, .  Just sold that at 2.42
> It's a love hate relationship.
> 
> I actually really like The Age 'Markets Live' Blog.  It's a great service.
> I think the papers should offer a pay per view service. this might help them rather than offering lock in contracts for the rest of the **** that they write.



I get an Age subscription. They are the last independent Australian paper.
They broke the banks story, and got blackbanned from their advertising. They have broken lots of stories in business and in government.
The ABC has no business budget and Newscorp will never dare to ask any questions and lessen their advertising. We need the Age/SMH.


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## Value Hunter (26 December 2017)

As far as I'm concerned RFG is more likely to be a falling knife than a turnaround candidate.

The problems I see are as follows:
-They have expanded into too many markets and brands too quickly and they need to scale back and consolidate
-In food trends are really important and they are missing the big trends. Major food trends currently are premium, organic, healthy, international cuisine etc. Crust Pizza does a decent job of catering to the premium trend and Gloria Jeans does a good job with the Asian niche who are a growing market but most of their brands such as BB, brumbies, donut King, Michaels patisserie, etc are slowly losing relevance.
-They are burying their head in the sand about their business model, how they treat franchisees, store rollouts, etc and instead blaming external factors such as the media and the retailing environment, etc. Really at this point if the company was really trying to turn things around they would have done a full scale strategic review (to identify a course of action) and sacked/replaced certain key directors and managers. If they cannot even honestly admit problems what chance do they have of solving them? 

In short I would still be steering clear of the stock.


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## notting (9 January 2018)

*Again!
Retail Food Group* has downgraded again, this time forecasting first-half net profit *below the $22 million level *flagged on December 19.


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## greggles (16 January 2018)

More RFG franchisee horror stories in the mainstream media: http://www.news.com.au/finance/smal...t/news-story/ae3d857151cd7808f01ed85cd9cc7deb

Negativity is hanging over Retail Food Group like a dark cloud. While it bounced off its lows at around $1.60, it has not been able to gain any traction since failing to break back through $2.50 and has drifted back down to $2.20. 

It's looking very weak at the moment and I can't see much good news in the pipeline.


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## So_Cynical (16 January 2018)

greggles said:


> Negativity is hanging over Retail Food Group like a dark cloud. While it bounced off its lows at around $1.60, it has not been able to gain any traction since failing to break back through $2.50 and has drifted back down to $2.20.
> 
> It's looking very weak at the moment and I can't see much good news in the pipeline.




Im tempted to say it wont see $1.60 again...but never say never.

$1.60 double bottom or a $1.90/$2 higher low?


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## greggles (16 January 2018)

So_Cynical said:


> Im tempted to say it wont see $1.60 again...but never say never.
> 
> $1.60 double bottom or a $1.90/$2 higher low?



I have no idea where this one will end up. It has a market cap of more than $400 million but I have concerns about the long term viability of their business model. I don't think it's out of the question that RFG could sink as low as $1 if management don't turn things around. Their brands are a bit long in the tooth and with a lot of competition out there I wonder how they will drive growth.

I reckon there's more money to be made on the short side than the long side with RFG.


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## galumay (16 January 2018)

I have held on, probably an error of judgement! I think the business is still worth more than its current share price, but it will take a fair while before Mr Market shares that confidence I suspect! 

As someone in the industry, I suspect the coffee business may prove to be the best part of business in the future, along with Hudson Pacific.

I should learn my lesson with roll-ups! Got belted with SGH, now RFG, I think they are a much better space for traders in the early growth stage and investors like me should avoid them like the plague!


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## kid hustlr (16 January 2018)

I like your thoughts Galu. Those who I trust well think the current valuation is ridiculously low and as a long term play is great.

The media rampage on this has been incredible


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## greggles (19 January 2018)

RFG continuing its slide south today. Continued negative media coverage appears to having a real impact on market confidence. Down around 6% today to $2.05 and looking weak.


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## Country Lad (19 January 2018)

kid hustlr said:


> I like your thoughts Galu. Those who I trust well think the current valuation is ridiculously low and as a long term play is great.
> 
> The media rampage on this has been incredible




Kid, I think you are not aware of the real position.  If you think the media coverage is a bit rough you ought to go out there in the real franchise world and have a look.  It is far worse.

I was involved in selling businesses in the past and recently spoke to other brokers still in the game.  They can't give these franchises away with numerous franchisees wanting to get out, virtually at any cost. Even the very few profitable ones are impossible to unload.
So if you make the wild assumption that RFG suddenly sorts out the problems and the franchisees become profitable, RFG's income will drop significantly as this will involve huge reductions in franchise fees and other income from the franchisees, resulting in further RFG downgrades.

And this does not even allow for no growth as very few new franchises being established as nobody wants to take them on, and the banks are becoming very reluctant to lend to the franchisees.

I think it is likely that in the near future you will see new profitable franchise names coming into the market in competition to those of RFG. 

In my mind, whichever way you look at it, there really isn't any upside for RFG.


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## greggles (19 January 2018)

Country Lad said:


> And this does not even allow for no growth as very few new franchises being established as nobody wants to take them on, and the banks are becoming very reluctant to lend to the franchisees.
> 
> I think it is likely that in the near future you will see new profitable franchise names coming into the market in competition to those of RFG.
> 
> In my mind, whichever way you look at it, there really isn't any upside for RFG.




Great post Country Lad.

In addition to all of the issues you mentioned, there is now talk of a class action against Retail Food Group by "hundreds" of disgruntled franchisees: http://www.news.com.au/finance/smal...s/news-story/aef7af8be7c319f3c53155f7bfd7b619

I can't shake the feeling that the worst is yet to come for RFG.


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## notting (19 January 2018)

It was a rather well orchestrated scam and the ones who pulled it have long gone and are now not involved in the company as it dies.
They destroyed some really good names.
Gloria Jean made the best coffees and was a great business.  Now it's all tarnished along with the others.
Some of the franchises have halved in number of outlets.
There needs to be a clean out and restructure, share holders need to demand new board and new management. 
They need to find some competent people to run the franchise with integrity.
Hopefully they can make it into something but it's not worth much as it is.


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## notting (23 January 2018)

Had a positive day today after announcing yesterday that a Former Metcash executive Richard Hinson was hired in a newly created chief executive role to oversee its embattled Australian store network.
So if it could consolidate here, keep the franchise outlets it still has and just get the thing running like a real business again then perhaps those established and, what were good stand alone brands, can keep going.
They will have to cut the div.
Can't believe their expanding the scam model into the UK!  That could be ugly.

This news was out yesterday but perhaps it took a bit of contemplating before people decided that it could be turned around.

Volume wasn't special it just bounced off the 61.8% fib of the previous bounce.


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## kid hustlr (26 January 2018)

Country Lad said:


> Kid, I think you are not aware of the real position.  If you think the media coverage is a bit rough you ought to go out there in the real franchise world and have a look.  It is far worse.
> 
> I was involved in selling businesses in the past and recently spoke to other brokers still in the game.  They can't give these franchises away with numerous franchisees wanting to get out, virtually at any cost. Even the very few profitable ones are impossible to unload.
> So if you make the wild assumption that RFG suddenly sorts out the problems and the franchisees become profitable, RFG's income will drop significantly as this will involve huge reductions in franchise fees and other income from the franchisees, resulting in further RFG downgrades.
> ...




https://www.google.com.au/amp/s/see...icle/4140076-retail-food-group-aussie-bargain

I don't hold & never will. It's not my game, I have a vested interest through viewing others on this.

I'm at the shops now, there's a donut king and a Gloria jeans going well. I don't shop there but many do. One off analogies don't make an investment case but at some point and at some price the needle turns to make things look attractive.

I think these brands will still be here in 10 years time. Media noise and hopeless management aside my limited understanding suggests there is some kind of opportunity here.

People will always have a dream to run their own show the rfg model isn't broken.


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## satanoperca (26 January 2018)

Come on guys, the rules of any business, service your customer to meet their desires, needs and requirements.

For the franchisees, there customer is the end consumer, are the products they are offering any better than those offered by others?
Do they have any uniqueness about them? 
Or are they simply just in the market place for the moment?

For the Master Franchisee there customer is the franchisee.
Same rules apply.
Are they servicing their customer?
Are they meeting their desires?
Are they fore filling their needs?
Are they providing innovation in the market place?
Are they providing something unique?

For the master, the answer is NO. But maybe they don't care, they are still making money for themselves, and f---k their customers (franchisees).

Maybe their products and offerings are outdated in a rapidly changing market place.

Can they change? Who knows!

Do they want to change? Who knows!

Do they care? Who knows!

Have the primary owners of RFG made a lot of money? Yes they have

So answer some of the questions above and you will find the answer to where this group will be in 10 years time.


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## galumay (26 January 2018)

satanoperca said:


> So answer some of the questions above and you will find the answer to where this group will be in 10 years time.




Its quite possible those questions will have no relevance to where RFG will be in 10 years time. The coffee and Hudsons may end up being the business and the franchise model may disappear. 

Its also entirely possible RFG wont exist in 10 years time. That is the dilemma for investors, understanding the range of possible outcomes, and then trying to assign probability. No one said it was an easy game!

I suspect that RFG will surprise on the upside in the long term, but my suspicion isnt a strong enough conviction to have me add to my current exposure to the business.


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## greggles (29 January 2018)

RFG share price got knocked down starting late Thursday afternoon and continuing this morning. It recovered to $2 by the close today but the sell down looked like someone taking the opportunity to get out.


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## notting (29 January 2018)

greggles said:


> RFG share price got knocked down starting late Thursday afternoon and continuing this morning. It recovered to $2 by the close today but the sell down looked like someone taking the opportunity to get out.




Today's the first serious trading day of the year for buy and hold type investors. So it's expected to be corrective and rocky.
All the action was straight out of the blocks then it climbed it's way back up for the rest of the day.  Quite positive overall.
But Bond yields in the US have tipped up to their highest point in years so the whole thing could be about to get volatile.


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## peter2 (29 January 2018)

Current Affair got stuck into RFG again tonight with lots of terrible stories of ruined franchisees.


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## greggles (30 January 2018)

peter2 said:


> Current Affair got stuck into RFG again tonight with lots of terrible stories of ruined franchisees.



Looks like the ACA episode had an impact on sentiment. The pre-open indicates that RFG is set to head south today, at least at the open.


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## McLovin (30 January 2018)

Business model looks busted to me. Rinsing franchisees with higher fees to keep profits rising, while SSS is negative. It needs a continuing supply of suckers and new (acquired) brands to keep profits ratcheting up. Unlikely they will be able to get either for the foreseeable future.

 They've got $250m in debt and $670m of fairly worthless intangibles, given the performance of their acquired brands (I assume the intangibles overwhelmingly relate to acquisitions). Interesting timeline...19/12 trading update...27/12 debt refinance announcement...09/01 downgrade to guidance given on the 19/12. Anyone know what their debt covenants are?

Aside from all that, I'm not sure I'd want to own shares in a business that apparently hides behind contracts to send hard working people to the wall.


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## greggles (30 January 2018)

I think the only chance RFG has long term is for a complete management and business overhaul and while I think that is a likely outcome given the overwhelming negative sentiment surrounding the company, there will be a lot of short term pain while the company is reorganised and no guarantees about the eventual outcome.

I can't see any positives on the horizon in the short term. It all looks very bleak.


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## greggles (19 February 2018)

RFG bouncing back over the last week. Bit of a surprise.


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## galumay (19 February 2018)

I suspect its leading into the HY report, its likely to be significantly better than the sentiment and media speculation implies so not surprising to see traders load up a bit.


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## greggles (23 February 2018)

Intrepid Capital Management Inc. becomes a substantial shareholder of Retail Food Group Limited after buying 9,343,565 shares between 19 December 2017 and 16 February 2018 and acquiring a stake of 5.29% in RFG.

A big vote of confidence from the Florida based fund manager. This from their website:


> *PHILOSOPHY*
> If there is one thing to understand about how we do business at Intrepid Capital, it's this: we are committed to _*the constant pursuit of value*_. This means that we look for the best value investing ideas with the goal of participating in the upside when markets rise while seeking to protect capital on the downside. For our clients this strategy fosters the confidence of a financial partner that is dedicated to their long-term goals.




http://www.intrepidcapitalfunds.com


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## greggles (1 March 2018)

RFG suspended from trading for failure to lodge their half year report. The company said yesterday that they are awaiting the auditor's report, which is expected to be received tomorrow.

They also said the following:


> As foreshadowed in the release made on 9 January 2018, RFG expects its statutory NPAT for 1H18 to be materially  less than the result for the equivalent prior period.  These results can only be finalised and released to the ASX once RFG’s financial statements for the period have been finalised.  That can only occur once the auditor’s report has been issued which may not, RFG currently understands, be available to RFG until Friday 2 March 2018.




Sounds pretty grim.


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## notting (1 March 2018)

One suspect it will go from high yield to no yield and that Intrepid might seek to cut their losses quickly!
It's usually grim when they suddenly have counting problems and need a bit of extra time from the auditor.


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## McLovin (2 March 2018)

Ummm....On the 9th of January how many thought a statutory NPAT of less than $22m meant a statutory loss of $87m? How are those covenants? Two hundred stores closing, this sure looks busted to me.

They've done their best to ensure a class action.


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## galumay (2 March 2018)

Yep, covenants look like a Hulk Hogan choke hold. I think its F$%%$, I have made a fool of myself again, I should have sold when they were $7.50 or whatever they ran up to, it was way past my IV range and I only held because I really though the coffee business could be transformative for them, but they have stuffed that up as well. (scary, because as a commercial roaster I know how good the margins are and how easy it is to make money).

I thought about selling out a couple of times in the last 6 months, but I thought (and still believe) so much of the reporting of issues with the franchisees was largely sensationalised rubbish. 

I will have to go back over all my notes and decide what I got wrong and why I got it wrong. I know anchoring bias is certainly part of it. I suspect ignoring the growing debt ratio was another.

The only glimmer long term is probably the wholesale side of the business, everything else is either rubbish or destroyed through mismanagement. 

My only consolation is that my decision making is improving over time and I have only made really bad mistakes like this a small number of times compared to the businesses that have performed well for me.


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## notting (2 March 2018)

You weren't alone plenty of analysts were into the model.  Model always seemed extortionist to me, killing the middle guy and selling the carcass to the next sucker.
The most troubling thing regarding the future is the lower foot traffic in malls which is where the best business is although I heard today that Chadstone car parks are as full as ever so maybe that is an excuse.
A positive is that they are coming back to market and not declaring receivership!
If the foot traffic is still there then surely this would be a compelling thing for someone who really knows how to run a franchising business to turn around.
Coffee and bakeries are never going out of fashion, very different to say Myer which is an ugly old world dinosaur and has been for about 25 years, which has only really been recognized as such in the last 7 or so. I couldn't stand Myer 20 years ago and could see much better dynamics elsewhere in retail back then as a shopper.
If I was Solly Lew I'd be going for RFG not Myer.  You could really do well out of it running it properly.
Didn't they get extensions on debts and they may do a raising to cover any immediate cash squeeze like the 7m which is all they have left!  Although you'd think they would do that now if they were going to.


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## galumay (2 March 2018)

Yep, i expect a CR is the next thing. You are probably right, there is some sort of business in there, I am more angry at myself for not selling when they ran so far ahead of my range of IV.


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## kid hustlr (2 March 2018)

What a story. I spoke to my friend last week about this and he was still passionately bullish. Really interested to see where this goes from here


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## Country Lad (2 March 2018)

From SMH:



> The company is now in a banker-enforced "step down program" to reduce its debt from $259.7 million, with 60 per cent of net proceeds of any asset disposal (unless agreed) earmarked to repay debt.  RFG suspended dividends for the half to support its balance sheet.
> Part of the impairments include a $45 million writedown on the value of Michel's Patisserie chain, and a $34.5 million charge on its retail coffee division, which includes Gloria Jean's and Cafe2U mobile networks.
> The company also booked a $4.5 million writedown on the value of its Pizza Capers chain.
> A further $35.7 million in charges have been booked as a result of the planned store closure program.


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## McLovin (3 March 2018)

galumay said:


> Yep, covenants look like a Hulk Hogan choke hold. I think its F$%%$, I have made a fool of myself again, I should have sold when they were $7.50 or whatever they ran up to, it was way past my IV range and I only held because I really though the coffee business could be transformative for them, but they have stuffed that up as well.




I'm not in trying to ride your arse, Gal, but forget about $7.50, you need to ask yourself why didn't sell in the last couple of months. The writing was on the wall. You've got to pull yourself away from your opinion every now and then, hard as it may be (we all do it, which is why ventilating our opinion is so important). Whether or not you believed they'd recover you could have, and should have, sat it out. Remember that thing about Mr Market giving you a buy _and _sell price everyday? Go back to last week and tell me you would have bought RFG shares if you weren't already invested and were doing your initial research.

I'm 100% genuinely saying this in the most constructive way possible, please don't take this as a personal slight, it's not. I hate seeing people lose their hard earned.


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## galumay (3 March 2018)

McLovin said:


> I'm 100% genuinely saying this in the most constructive way possible, please don't take this as a personal slight, it's not.




Hell no, I totally appreciate the feedback. Not much point in posting here if its an echo chamber!

I didnt sell in the last couple of months because I had decided things were not nearly as bad as Mr Market thought. I went back over all my research and analysis and the  IV range I had calculated for the business was much higher than its SP. 

Interestingly when I go back through my decision journal I find that there is no mention of RFG at the various times when I was considering selling down postions. So I never got to the point of seriously considering selling.

Its probably worth noting that I also didnt consider buying more to average down seriously, as it would be recorded in my journal had I done so.

So all that aside, we are where we are, and now the decision to be made is whether to get out at any price or to hold on and see if RFG can rebuild a business somehow. I know some will believe its a no brainer and selling now is the only sensible option, but its not so simple for me. I have done very well a number of times by holding strong conviction positions and patiently waiting for the rewards. So the question for me is more about understanding my level of conviction about the ability of management to turn the business around and get it back on track. 

Holding those sort of convictions in contrarian positions when almost no one is seeing the world the same way, for the same reasons, is challenging - and of course can still turn out to be wrong in the long term!.


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## Country Lad (3 March 2018)

galumay said:


> I didnt sell in the last couple of months because I had decided things were *not nearly as bad as Mr Market thought. *
> 
> Holding those sort of convictions in contrarian positions when almost no one is seeing the world the same way, for the same reasons, is challenging - and of course can still turn out to be wrong in the long term!.




I am sure we have all done this.  I certainly have in my early trading days, but the thing I learnt after a couple of bad trades that it didn't matter what I thought or what anybody else thought, the market is always right and it is not a good strategy to start arguing with the market.


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## galumay (3 March 2018)

Country Lad said:


> the market is always right and it is not a good strategy to start arguing with the market.




Different horses for different courses, that view is diametrically opposed to my view, the market is often wrong and arguing with the market is how I make money. 

I suspect the difference is partly due to you being a trader, I imagine you need a very different world view, strategy and psychology to be a trader. 

Of course on a higher level these contradictory views are what creates a market, without them there would be no opportunity.


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## greggles (5 March 2018)

As expected, carnage this morning for RFG. It opened at $1.09, bottomed out at $1.03 and is currently trading around $1.40, so it has bounced back well from its low. Where it will finish the day is anyone's guess.


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## Wysiwyg (5 March 2018)

1.60 was the last support level. Maybe that becomes resistance in the future. Definitely a 'don't argue' from the market .


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## greggles (5 March 2018)

Wysiwyg said:


> 1.60 was the last support level. Maybe that becomes resistance in the future but lower from. Definitely a 'don't argue' from the market .



Here's the RFG story in one 10 year chart. $1 to $8 and then back to $1 again. The market can be just as ruthless as it can be kind.


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## Wysiwyg (5 March 2018)

What to buy, when to buy and when to sell. The other side of an uptrend is consistently undesirable for taking long (hold) positions. Been black swan burnt more than a few times from extremely similar charts.


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## galumay (5 March 2018)

The problem for me now is the debt, and the attached convenants, I have drilled down fairly hard in trying to decide whether to sell out or hold on, or accumulate. 

First decision was easy, I cant accumulate with the debt the way it is and the covenants. I did a very dirty and quick baysian, back of the envelope exercise in calculating an expected value and came out with about $1.25, which would imply selling is the correct option. 

I also projected an IV based on what I think might happen with the cash flows and earnings going forward as well as allowing for a CR (I think it needs that just to survive.), that gives me a range of around the $2 mark. So depending on my conviction with that outcome, could be a wait and hold!

Still thinking.


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## notting (5 March 2018)

It's lost all credibility.
It's going to suffer, before becoming viable, if it's not taken over by someone who can run the thing.


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## McLovin (5 March 2018)

galumay said:


> The problem for me now is the debt, and the attached convenants, I have drilled down fairly hard in trying to decide whether to sell out or hold on, or accumulate.




To me it just looks like a stretched balance sheet (they're on the hook for franchisee leases too), with mediocre brands, some of which are well passed their use-by date, and a very unhappy group of franchisees. Their business is busted, who would be dumb enough with all the negative media they've received to go and buy an RFG franchise? I wouldn't hold through this because it will take a long time to turn this business around, if they ever manage to. If there comes a time to buy there will be plenty of opportunity.



galumay said:


> First decision was easy, I cant accumulate with the debt the way it is and the covenants.




If you acknowledge the debt is a serious issue why hold the shares? It seems to me to be taking unnecessary risk with your money. The first rule of finance is past decisions don't affect future decisions. You wouldn't buy shares today, but you'll continue to risk your capital...


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## galumay (5 March 2018)

McLovin said:


> The first rule of finance is past decisions don't affect future decisions. You wouldn't buy shares today, but you'll continue to risk your capital...




I just dont think its as binary as that, past decisions do influence subsequent decisions. If I hadnt bought in the first place then the decision would simply be "is RFG trading at a price that makes it a compelling buy?" - and with the debt, I dont think its there yet.

But thats not where I am at, I do hold a significant number of RFG, I have no need of the capital for at least 10 years, if I sell I realise a loss that is not insignificant. Of course there is some risk that in not selling I will lose more capital, but there is also a significant potential for the business to recover and increase it's value again. 

I havent made my mind up either way, but for me its a multi facetted decision with a lot of moving parts and not a simple, binary one.


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## Knobby22 (5 March 2018)

I can't believe the buyers today pushing the price above $1.20 when it had sunk to nearly a dollar.
Why would you buy? As McLovin said there will be plenty of chances in the future. It's bad enough that they will have to turn the business around when there would be few potential franchisees wanting them at the moment. There is the upcoming court cases, sure to be more bad news from the franchisees, also  the underpaying of staff that has yet to bite them. My prediction is sub 50c.


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## Toyota Lexcen (5 March 2018)

Terrible situation for shareholders, another one where cash perform better


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## Toyota Lexcen (5 March 2018)

galumay said:


> I just dont think its as binary as that, past decisions do influence subsequent decisions. If I hadnt bought in the first place then the decision would simply be "is RFG trading at a price that makes it a compelling buy?" - and with the debt, I dont think its there yet.
> 
> But thats not where I am at, I do hold a significant number of RFG, I have no need of the capital for at least 10 years, if I sell I realise a loss that is not insignificant. Of course there is some risk that in not selling I will lose more capital, but there is also a significant potential for the business to recover and increase it's value again.
> 
> I havent made my mind up either way, but for me its a multi facetted decision with a lot of moving parts and not a simple, binary one.




No need for capital for at least 10 years? Not a good outcome


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## Miner (5 March 2018)

who were the smart traders who bought at $1.1 at least and bailed out. Needed lots of gutts however.
Lucky to sell at average $2 between 22 to 26 February.


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## galumay (5 March 2018)

Toyota Lexcen said:


> No need for capital for at least 10 years? Not a good outcome




How so?!


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## notting (5 March 2018)

Knobby22 said:


> I can't believe the buyers today pushing the price above $1.20 when it had sunk to nearly a dollar.



Answer : I was a bit late to the table, cause I was tied up with other stuff. But I still bought at 1.25 and sold at 1.45 and 1.435


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## Knobby22 (5 March 2018)

Think of it this way Galumay. Rather than wait, go with the market and sell. You can then buy back the shares at a cheaper price and buy additional if you want. I used to be like you but have learnt to be nimble. That is the big advantage of being a small investor.


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## galumay (6 March 2018)

Knobby22 said:


> Think of it this way Galumay.




I do think about it that way, Knobby22, thing is I also think about it other ways as well!! 
Its still unresolved for me. I used to be like me too, but now I take much longer to make decisions.


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## HelloU (6 March 2018)

many sides to choices........when thinking capital i also think overall tax position (and maybe what/when a 'forced' tax loss does - liquidation)


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## greggles (10 March 2018)

Another negative media article today:  Facing a triple whammy of challenges, can cake-to-coffee chain Michel’s Patisserie survive

The article makes some good points about the franchise model, which does appear to be a bit stale and bland given the diversity of options out there these days, particularly in capital cities.


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## Miner (10 March 2018)

Here u go. RFG is out of index . So watch this Monday  to see the price probably goes below $1 without support from financial institutions and fund managers.
Sorry - no joke but going to be tougher for RFG believer at least next 12 months for sure. MF (Share Advisor) has at last showed white flag calling RFG is a SALE. You do not need an expert to tell that when priced dived and dived down. No more holding


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## greggles (16 March 2018)

Miner said:


> Here u go. RFG is out of index . So watch this Monday  to see the price probably goes below $1 without support from financial institutions and fund managers.




Retail Food Group at $1.03 and flirting with $1 this morning. Hard to believe RFG is back at late 2006 levels.


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## VSntchr (16 March 2018)

Knobby22 said:


> Think of it this way Galumay. Rather than wait, go with the market and sell. You can then buy back the shares at a cheaper price and buy additional if you want. I used to be like you but have learnt to be nimble. That is the big advantage of being a small investor.



Additionally, the value of the capital loss for tax purposes is not to be overlooked.
At worst it gives you some time to form a clear unbiased opinion of the stock while your flat. If the price goes up a little - no big deal as the tax asset should more than cover it. 

However, the bigger position you have the more complicated the decision becomes with more factors involved.


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## galumay (16 March 2018)

VSntchr said:


> Additionally, the value of the capital loss for tax purposes is not to be overlooked.




I have never really understood that justification for losing capital! (plus I have enough of a capital loss with SGH thanks very much!)


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## VSntchr (17 March 2018)

galumay said:


> I have never really understood that justification for losing capital! (plus I have enough of a capital loss with SGH thanks very much!)



Well it is not so much a justification, in my mind it is more around making a decision to optimise your situation from a financial perspective.

If you sell (legitimately! - rather than for blatant tax wash purposes), you can make the decision about whether or not you really want your capital exposed to this investment without the sunken cost bias.

If you decide that you do see the ability for this franchise to create surplus cash flows over and above other researched opportunities - then you can re-purchase your shares. Until your operating with market moving size - you really don't have to consider your transactions market impact

It only takes a short time with a spreadsheet and all of the relevant personal and investment details to figure out the relative worth of the tax asset, brokerage implications etc etc.

Or you may decide after selling that there are far better investment opportunities elsewhere and you've avoided potentially wasting precious compounding time sitting in a very slow-to-turn turnaround.


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## galumay (17 March 2018)

VSntchr said:


> Well it is not so much a justification, in my mind it is more around making a decision to optimise your situation from a financial perspective.




Thanks mate, i guess I just dont get it. Its simply not how I think about investment. Thats ok, we cant all be thinking and doing the same thing!


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## Value Hunter (24 March 2018)

The problem still remains that there is no conceivable pathway to a turnaround on the horizon. Even leaving aside the issues of incompetent and dishonest board and management, not being able to recruit new franchisees or the class action or the stretched balance sheet, all of which are problems that are solvable (albeit difficult), the real problem is that the underlying business itself is a lemon.

Most of the brands are old tired concepts and aren't in on the right food trends such as cheap e.g. Dominos, or healthy e.g. SumoSalad and T2, or premium fast food e.g. Grill'd and Nandos, etc.

Better to sell at $1.00 then wait until it goes to zero.


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## sptrawler (24 March 2018)

You're right VSntchr, I've ridden a few into the ground, now I look at a share and say to myself "would you buy more"?
If the answer is no, then why am I hanging on, if the share price is sliding? You really have to be honest with yourself, at that point and decide if the business model is worth it, channel 10 was a perfect example.
Just my opinion.


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## galumay (24 March 2018)

Value Hunter said:


> The problem still remains that there is no conceivable pathway to a turnaround on the horizon. ...
> 
> Most of the brands are old tired concepts and aren't in on the right food trends such as cheap e.g. Dominos, or healthy e.g. SumoSalad and T2, or premium fast food e.g. Grill'd and Nandos, etc.
> 
> Better to sell at $1.00 then wait until it goes to zero.




The only possible scenario I see for a turnaround is to trim back the franchises to which ever if any are still profitable and focus on the coffee (which should be the best part of the business, and the reason I stayed in when they ran up.), and the distribution business. Whether that company would be worth any more than $1 is debatable anyway!


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## galumay (26 March 2018)

Sold my RFG today, the more I analysed it the less certain I was that the company would ever be worth more than $1 again. The debt was the killer for me, if I put that aside there is a profitable, smaller business left, but the debt is just too huge to see them being able to deal with it, I can also see massive writedowns in the intangibles coming which will destroy equity. 

A salutory lesson for me, its the second time that I have held companies when they were way past IV and I had a paper double bagger, RFG & SGH were both positions I could have massively profited from and instead have booked massive losses.


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## Toyota Lexcen (26 March 2018)

terrible situation for you galumay


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## galumay (26 March 2018)

Toyota Lexcen said:


> terrible situation for you galumay




Thanks mate, but thats only true if I dont learn from it! An expensive lesson, but a valuable one about following strategies and having clear decision making processes. Overall my returns in my SMSF and personal portfolio are in line with my absolute goals so that makes the losses more bearable!


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## Miner (30 March 2018)

Miner said:


> who were the smart traders who bought at $1.1 at least and bailed out. Needed lots of gutts however.
> Lucky to sell at average $2 between 22 to 26 February.



If I could  correct /edit my this posting, then I would say who are the unfortunate holders of RFG who still holding RFG  on  the next business day  when market returns.
Another feather on the ill fated  cap of RFG 
http://www.abc.net.au/news/2018-03-...stop-bad-franchisors/9601204?section=business


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## Wolfofwilliamst (13 April 2018)

Even our beloved Scott Pape 'the Barefoot Investor' got burnt by RFG. I think now that the dust has settled from the H1 results and the huge write-downs, and the Fairfax report of franchisee pain.....this company is finally in BUY territory.
It isn't without risk however, as geopolitocal market events and panicky investors may still cause further falls - that i beleive would be external to RFG value.
Some of the numbers:

Share Price – $0.93
Book Value Ratio – 0.35
Net Profit 2017 – $62m
Net Profit Margin 2017 – 21.35%
Debt – $250m

Net Profit H1 2018 (Before Intangible Writedowns and Closure Costs) – $24.7m.
Net Profit Margin H1 2018 – 14.5%

*Pros*
* They have a decent enough trailing profit margin, so there is room to take a hit and restructure further.

* Book value is high and has grown over the last 10 years.

* Restaurants are diversified and coffee services are robust.

* Dividends have been suspended. A big negative on the surface, but as 2017 was a distribution of $52m to shareholders….this can now be saved to pay down debt and destress franchisees.

* $10m has been flagged as costs savings moving forward.

*Cons*
* High debt load considering the now depressed market cap. Although trailing sales of $349m and an EBIT of $108m give Retail Food Group some power to repay.

* Uncertainty to the number of store closures. Will it be 200 or much higher?

* Debt covenant to maintain over $90m in EBIT for 2018 is worrying.

* Book value may reduce if further intangible value writedowns are pushed through.

This should be a wake up call to Mr Nell and RFG directors, to realise that they have to look after their people – because it is the people running the restaurants that make the bottom line happen. Stop milking the cows so hard and put a bit back into the franchisee pockets and the organic growth will take care of the rest.

Only a few months back Retail Food Group was $4.50 a share, it now sits at less than $1. It's making 30% less profit since the Half 1 results and will most likely report lower earnings again in Half 2....so lets call its 40% less profit with a purchase discount of 85%. Not bad.

A bit more info on how i would scale into this as a medium term investment and some further numbers here.
Cheers, welcome any feedback.


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## galumay (13 April 2018)

I would be very wary about putting much confidence in the book value, there is a lot of dubious value in the non-current assets. I think profit this year is difficult to forecast, debt is the catostrophic risk IMO. RFG will probably need a CR to survive and even then its marginal. I know when I sold out (much too late), i did some calculations on the expectancy and it wasnt good, my back of the envelope number was 90c. The debt and the intangible assets were too higher risk for my appetite!

Of course having sold, my biases are to confirm my view as being correct, so....


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## greggles (20 April 2018)

Retail Food Group to open 40 new Gloria Jeans Coffee franchises in Germany?

http://crweworld.com/article/news-p...a-jeans-coffee-outlets-set-to-open-in-germany

This hasn't been announced by RFG yet but it seems like a strange development. Is sentiment surrounding the company so bad now in Australia that they have to go overseas to open new franchises?

Will this kind of business model work in Europe, especially for something like coffee?  There are already 161 Starbucks outlets in Germany so there is already plenty of competition. Seems like a desperate move to me.


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## Knobby22 (20 April 2018)

greggles said:


> Retail Food Group to open 40 new Gloria Jeans Coffee franchises in Germany?
> 
> http://crweworld.com/article/news-p...a-jeans-coffee-outlets-set-to-open-in-germany
> 
> ...




Gloria Jean is quite popular in Asia.


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## greggles (16 May 2018)

One month later and RFG has continued to drift south on low volume. It's currently at 80.5c. 

The company has been deathly silent for two and a half months with no announcements of note since the business-wide review update of 2 March.

Will this get cheap enough to tempt anyone or is there just too much risk involved given all that has happened in the last six months?


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## galumay (16 May 2018)

Too much risk as per my earlier post. The debt is the killer, doesnt matter what price it drops to IMO.


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## McLovin (16 May 2018)

greggles said:


> Will this get cheap enough to tempt anyone or is there just too much risk involved given all that has happened in the last six months?




A bunch of busted brands inside a busted franchise model inside a company with high debt. Who wants that at any price?


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## VSntchr (16 May 2018)

McLovin said:


> A bunch of busted brands inside a busted franchise model inside a company with high debt. Who wants that at any price?



I actually feel sorry for the employees when I walk past a "Michelles Patisserie" or "Donut King".
It just feels like they are stuck in 1999


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## greggles (16 May 2018)

Busted brands is an apt way to put it McLovin. As for debt, I had forgotten how bad it is. More than a quarter of a billion dollars in debt. They are in it up to their eyeballs. I can't imagine the mood in at RFG corporate HQ at the moment. There must be a ton of pressure bearing down on them to pull something out of the bag.

Very grim indeed.


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## McLovin (16 May 2018)

VSntchr said:


> I actually feel sorry for the employees when I walk past a "Michelles Patisserie" or "Donut King".
> It just feels like they are stuck in 1999




Michel's is so bad. I can't see how the place still has customers. You're right, it belongs in a suburban strip mall in 1999. But RFG's MO seems to be to buy a decent brand and then get as much cash out of it as quickly as possible. And then keep it running on life support to keep enough suckers willing to pony up for a franchise.


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## greggles (16 May 2018)

VSntchr said:


> I actually feel sorry for the employees when I walk past a "Michelles Patisserie" or "Donut King".
> It just feels like they are stuck in 1999



Man, Donut King. What an out-of-date concept. I remember getting half a dozen cinnamon donuts from Donut King back in the late 80s at Capalaba Park shopping centre. Back then, Woolworths didn't sell them by the truckload for next to nothing so there was some reason to get those artery cloggers from Donut King.

Donuts generally have had their moment. Remember all the hype about Krispy Kreme about a decade ago? People were driving across entire cities to load up on that crap. Now nobody cares. Krispy Kreme Australia went into administration about eight years ago although there are still stores around. Doughnut Time went into liquidation a couple of months ago.

How do they keep Donut King going? Who's buying all their damn donuts?


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## greggles (6 June 2018)

RFG plumbing new lows in the last couple of days after yesterday's FY18 Earnings Update which stated that the company expects FY18 underlying NPAT to be approximately $34.5 million and statutory NPAT to be a loss of approximately $87.6 million. 

FY17 underlying NPAT was $75.7 million so the financial impact of the events of the last 12 months are becoming clearer.

RFG currently trading at 72.5c.


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## McLovin (6 June 2018)

greggles said:


> RFG plumbing new lows in the last couple of days after yesterday's FY18 Earnings Update which stated that the company expects FY18 underlying NPAT to be approximately $34.5 million and statutory NPAT to be a loss of approximately $87.6 million.
> 
> FY17 underlying NPAT was $75.7 million so the financial impact of the events of the last 12 months are becoming clearer.
> 
> RFG currently trading at 72.5c.




Big deterioration in H2. Underlying H1 was $24.5m, uFY is expected at $34.5 so uH2 tracking at $10m. If that is what we can expect for the next few halves then a cap raising is all but assured or the bankers will be knocking on their door.

Sidebar: And WTF is with them bringing out a doughnut with V energy drink inside it. That feels like something that belongs only in a state fair in America. Filthy. No wonder Australia is full of fatties!

https://www.pedestrian.tv/bites/donut-king-v-energy-donut/


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## greggles (6 June 2018)

McLovin said:


> Big deterioration in H2. Underlying H1 was $24.5m, uFY is expected at $34.5 so uH2 tracking at $10m. If that is what we can expect for the next few halves then a cap raising is all but assured or the bankers will be knocking on their door.



H217 NPAT was $42.2 million, which was stronger than H117 NPAT of $33.5 million, so by comparison FY18 results are looking particularly bad. That debt is hanging over them like a black cloud and their ability to service it is also deteriorating. The vice is continuing to tighten on RFG. 



McLovin said:


> And WTF is with them bringing out a doughnut with V energy drink all over it. That feels like something that belongs only in a state fair in America. Filthy.



Looks like a desperate gimmick designed to attract attention to the Donut King brand. It doesn't look appealing at all and at 442 calories for the combo it's a nutritional nightmare. I can't imagine how much sugar must be in there. 

https://www.donutking.com.au/vdonut/


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## McLovin (6 June 2018)

greggles said:


> Looks like a desperate gimmick designed to attract attention to the Donut King brand. It doesn't look appealing at all and at 442 calories for the combo it's a nutritional nightmare. I can't imagine how much sugar must be in there.
> 
> https://www.donutking.com.au/vdonut/




I'm surprised it's only 442! The people I see drinking V never seem to look as though they are short on stored energy.


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## greggles (8 June 2018)

Retail Food Group removed from the S&P/ASX 200 Index, effective from the Open on 18 June 2018.


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## Faramir (8 June 2018)

RFG deserves to be kicked out. I know how the feeling of being naive and then being talked into a “business opportunity”. Poor Franchisees, made to carry the load for the d%}}#d management. RFG is not the only ones to do this to their Franchisees. RFG should never been rewarded for screwing up their staff. No one should have ever put a cent into their business model. Call me bitter but that’s how I feel. I may have not looked into their numbers, annual reports etc but I know how it feels to be conned. That’s enough for me.


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## Faramir (8 June 2018)

Don’t worry, I have never held any RFG. Feel sorry for those who got sucked into the hype.


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## greggles (8 June 2018)

Volume has been picking up again in the last couple of weeks. Sellers obviously outnumbering the buyers as the share price has been declining.

Even if they did do a capital raising, who would take it up? The smell around RFG is so pungent that I can't imagine there would be many takers.


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## greggles (27 June 2018)

RFG has been copping a hell of a pasting in the run-up to the end of financial year. A year ago this was around $4.75. Today it closed at 43c. With very few buyers, the sellers have now completely taken control. This may even end up sub-40c by the end of the week. Ugly.


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## galumay (27 June 2018)

Yep, happy to get out when I did. Got better at making the decision to sell out of dogs. Still left it too long, but I am a slow learner!


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## So_Cynical (28 June 2018)

galumay said:


> (Mar 26, 2018) Sold my RFG today






galumay said:


> Yep, happy to get out when I did. Got better at making the decision to sell out of dogs. Still left it too long, but I am a slow learner!




A dollar sumthin is better then 45c - i never did sell my little position, oh hang on its not as little as i thought...yikes!


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## notting (29 June 2018)

When a 24% spike only looks like this on the daily chart - there's money to be made! 
After they announced their not going to be marked to market by the finances who must feel there is enough in it to manage the debt!


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## kid hustlr (29 June 2018)

So_Cynical said:


> A dollar sumthin is better then 45c - i never did sell my little position, oh hang on its not as little as i thought...yikes!




It's amazing how a little position can play on your mind and it becomes 'not that little'. Has happened to me once or twice!


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## luutzu (29 June 2018)

I thought Mermaid Marine crashing from $2+ to 20c was bad. Wait, same proportion I suppose.

With MRM, the oil can be cyclical so there's a chance the stuckholders can regain after a long while. 

This one... donuts, overpriced coffee and the coming property crash and credit crunch... And that's not including the lawsuits. Hard to see how this one could survive.

Sorry, don't mean to rub it in. Just my opinion. I bought into ANQ and MRM if that's sharing any pain... though I think MRM is due for an uplift, ANQ is circling round the tube.


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## McLovin (29 June 2018)

notting said:


> When a 24% spike only looks like this on the daily chart - there's money to be made!
> After they announced their not going to be marked to market by the finances who must feel there is enough in it to manage the debt!




They're talking about potential asset sales. Looking at their brands, aside from Gloria Jean's what could be sold and to whom that would get them out of the hole and leave a stable of brands that actually have any meaningful mid-term value?

I have to say I don't understand the price pop. This is the banks putting their hands around RFG's neck. And a cap raise is on the way _if _ they can get one away.


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## notting (29 June 2018)

Yeah but, don't forget they were using the franchise operators to take the pain. Now that that's harder their closing them down. They can save a lot from not paying dividends and when it's 'hard to see,' but when they aint going to go under then the turn around can be pretty spectacular! As in FMG, LYC, QAN, WHC, AGI, STO.
Near death experiences are the best!!


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## kirtdog (29 June 2018)

What is the worse case scenario here? Would banks let RFG go bankrupt or would it be forced to sell off all of its assets? In the event of a sale, what price share holders get?
Looking at the most recent book value ~$2, and minus the reported loss, hypothetically if it was all liquidated immediately wouldn't it still return ~$1.50 per share?
Was looking at it yesterday at $0.427, thinking how could a business plummet from $7 less than 2 years ago to that. I am not taking the risk as I don't have a good enough understanding, but I can't help but think there must be some value at the current price.


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## galumay (29 June 2018)

kirtdog said:


> but I can't help but think there must be some value at the current price.




Have a look at the amount of debt, it basically makes the business worthless.


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## notting (29 June 2018)

galumay said:


> Have a look at the amount of debt, it basically makes the business worthless.



It's priced at that by the market, but if it can manage the debt with cashflow which the creditors are signaling that they can, and this is a bottom in terms of cleaning up the mess, then you have a business with solid brands being primed.


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## kirtdog (29 June 2018)

galumay said:


> Have a look at the amount of debt, it basically makes the business worthless.



Ah ok thanks, so I found the figure $250M debt using the Etrade balance sheet figures I have which are old end of FY17. But it has a revenue of 348.5M? And then net profit 61.9M which I think mean revenue minus the operating expenses, I would expect that includes debt payments?
It also has great growth rates over a 10yr and 5yr period, it does show some poor results for the past year to Jun 2017, so must have had a bad year and I am guessing a bad year this year. I can also stomach a debt:equity ratio of 53% with the growth rates it has.
To get a further understanding would you typically have to follow a business for a period of time to understand it or can an experienced person just glance at the numbers? To me this one looked pretty good on paper, but I understand this is likely not correct based on the share price plummeting.


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## notting (29 June 2018)

The Group expects FY18 underlying NPAT to be approximately $34.5 million and statutory NPAT to be a loss of approximately $87.6 million, taking account of the substantial impairment charges booked at 31 December 2017.


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## galumay (29 June 2018)

kirtdog said:


> To get a further understanding would you typically have to follow a business for a period of time to understand it or can an experienced person just glance at the numbers? To me this one looked pretty good on paper, but I understand this is likely not correct based on the share price plummeting.




Well i followed it for a period of time, then bought it, ended up losing 10's of thousands of dollars - so  take my comments with a grain of salt.

In general a detailed reading of the most recent Annual report should give you some insight into the health of the business. 

In RFG's case it looks doomed on paper, massive debt, crashing revenue, massive negative press around the franchise business model, the growth was funded by debt & capital raising, it turned out to be an illusion once the business model collapsed.

Think about it probalistically, sure there is a chance they can somehow turn the business around and survive, maybe based on the coffee business, but even optimistically its hard to see the business being worth much going forward, on the other hand there is a real chance that they cant trade out of this and end up folding. That outcome is what I call catostrophic risk in a business. Are you happy to risk the real possibilty of losing 100% of your invested capital for what looks like a fairly unlikely gain of an unquantified amount? Thats the sort of asymmetric risk I prefer to avoid!


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## McLovin (29 June 2018)

notting said:


> It's priced at that by the market, but if it can manage the debt with cashflow which the creditors are signaling that they can




If the lenders believed that they could manage the debt with cashflow they wouldn't be pressing for asset sales.

Just glance at network sales and ebitda cpo especially in the BCD dvision. It's going to be hard to pay creditors and have enough left on the table for shareholders. The worst bit is I would expect the brands to continue to deteriorate for the remainder of the year as franchisees close down and are not replaced because of all the negative publicity. Any potential franchisee just has to Google "Michelle's/Donut King/Gloria Jean's franchise" and get wall to wall negativity.

It's not the same as hoping for a commodity price recovery and buying the marginal producer.


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## notting (29 June 2018)

Yeah but, they will be left with the performing ones.
They couldn't have the kind of cash flow and historical profits they had if they were all losing enterprises.
They were just funding the growth with not so good ones, on the back of bankrupting Franchisee operators!
They should get that Vita group chick in to manage all the knew startup stalls. She's looking to diversify! 





(I don't think, Jims Coffee would be so good LOL}


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## luutzu (29 June 2018)

kirtdog said:


> Ah ok thanks, so I found the figure $250M debt using the Etrade balance sheet figures I have which are old end of FY17. But it has a revenue of 348.5M? And then net profit 61.9M which I think mean revenue minus the operating expenses, I would expect that includes debt payments?
> It also has great growth rates over a 10yr and 5yr period, it does show some poor results for the past year to Jun 2017, so must have had a bad year and I am guessing a bad year this year. I can also stomach a debt:equity ratio of 53% with the growth rates it has.
> To get a further understanding would you typically have to follow a business for a period of time to understand it or can an experienced person just glance at the numbers? To me this one looked pretty good on paper, but I understand this is likely not correct based on the share price plummeting.




If this goes into liquidation, it's going to be worth.... about....

-$1.50 to $0.26. That's negative $1.50.

It's not a business you'd want to hold once earnings goes to heck. Too much "intangibles", too high debt, hardly any hard assets.







Chart show today's closing $0.54cps. Way above any asset backed measure. 

You'd want a business like this to keep on earning. Given the macro environment; its own business model and offerings; its reputation... i.e. them $669M in intangibles... not going to be pretty.

Though that's not to say its market price won't go up etc. But over the medium to longer term, quite possibly terminal.

btw, Commsec's market cap for RFG is wrong by some $20M under. Share prices have been issued since its last report.


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## luutzu (29 June 2018)

Check this out....






In 2015, the market price implied an expected growth p.a. of about 10% to 13%. The couple years before that they expect 5% and above per annum.

That's high expectation. 

When the business can't deliver, and most business cannot deliver, definitely not consitently... When that happens.... bam!


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## luutzu (29 June 2018)

Have always been a terrible business too. 













Inventory Turnovers improved a lot past few years. But takes longer to receive payables.







Yup, margin dropped. i.e. prices dropped so sales/inventory turned faster. 

Still pretty good margin though. But oh yea.... franchisees getting screwed to produced these margins for RFG?


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## notting (6 July 2018)

And the numbers were lies!



> A former Brumby's Bakeries franchise owner has accused the ex-chief executive of Retail Food Group, Tony Alford, of using him to hide loss-making stores and mislead the market.
> 
> Baden Burke, in a submission to a parliamentary inquiry into franchising, claimed he was befriended by Mr Alford and later used to hide stores that were losing money under a special management deal.
> 
> ...




Such a pitty.  Gloria Jeans coffee is the best coffee in the country from a franchise outlet by a country mile runs absolute circles around fricken StarBucks which is the most overrated typical American crap.
And go buy a 'Cape Seed Loaf' toast sliced from Brumby's best bread on the volume market too. Sad these dickheads have stuffed it up so much. Maybe they could sell some of the outlets off as stand alone stores and give them access to the ingredients some how.


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## notting (10 July 2018)

I just realized that the cape seed loaf that is the best bread around from a franchise is actually from Bakers delight. So it's only Gloria Jeans that matters now


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## greggles (17 July 2018)

After the brief blip up on 29 June, the RFG share price has continued heading down and is now basically back to where it was on 28 June. Gravity truly has this company in its grip.

FY18 financial results are due in August. In the absence of any positive news in the meantime, RFG should continue to head south.


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## notting (27 July 2018)

*Hey Fatty!*
*Feel like stuffing your face?*

*



*

Instead of displaying donuts neatly lined up on racks, a dozen Donut King franchisees have started piling donuts - frosted, jam-filled, and sugar coated - on plates of different sizes, shapes and heights in glass-fronted cabinets.

It's a cornucopia of temptation and it's proving irresistible to customers.

Sales at one Donut King store that's part of the pilot program have risen 15 per cent, says Hinson, who is working on similar merchandising changes for Retail Food Group's other brands including Gloria Jeans, Brumby's Bakeries and Michel's Patisserie.

Like I said near death experiences can provide for the greatest turn around...


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## So_Cynical (27 July 2018)

The SP decline has flattened out, 74 Million market cap is probably about right considering the previous bad news flow, RFG probably isn't going to zero, maybe they should re band as Gloria Jeans and be done with the rest.


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## kid hustlr (27 July 2018)

From a technical perspective, the last 2 days were on as low as volume as I have seen in months and months. Not suggesting 'this is the end of the selling' by any means but perhaps the landscape of the players involved has changed ever so slightly?


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## McLovin (21 August 2018)

What's going on here? SP suddenly has a rocket under it.


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## Knobby22 (21 August 2018)

McLovin said:


> What's going on here? SP suddenly has a rocket under it.



55% rise.!?


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## notting (21 August 2018)

Perhaps they offloaded their distribution business to get the banksters off their backs.
Brands are good, just need to get their act together as stated earlier.
I'm enjoying in it!!


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## greggles (3 September 2018)

Retail Food Group FY18 financial results.






RFG's bankers circle as group records massive loss



> The troubled owner of the Gloria Jeans and Donut King chains has been given a little over a year to get its balance sheet in order by its bankers after further writedowns on the values of its brands led to a $306.7 million loss for 2018.
> 
> Retail Food Group revealed on Friday it had struck a new deal with its bankers with some tightened conditions after impairments for its struggling suite of brands blew out to $402.9 million, from $138 million six months earlier.
> 
> ...


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## galumay (3 September 2018)

As predicted, its cooked. No chance of paying off the debt IMO. It will be a slow decline and then a quick death.


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## greggles (11 September 2018)

galumay said:


> As predicted, its cooked. No chance of paying off the debt IMO. It will be a slow decline and then a quick death.




I just noticed RFG was removed from the S&P/ASX 300 Index last week. 

Strangely, this morning a Change in substantial holding notice was released that revealed Invesco Australia Limited had increased its holding in RFG from 12.298% to 13.385% on 07/09/18. I wonder why they would increase their holding on the same day that RFG was removed from the S&P/ASX 300 Index?


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## luutzu (11 September 2018)

greggles said:


> I just noticed RFG was removed from the S&P/ASX 300 Index last week.
> 
> Strangely, this morning a Change in substantial holding notice was released that revealed Invesco Australia Limited had increased its holding in RFG from 12.298% to 13.385% on 07/09/18. I wonder why they would increase their holding on the same day that RFG was removed from the S&P/ASX 300 Index?




The datafeed on ASX300 didn't get updated on their system yet?

What a scam these managed funds are. Taking people's savings and just randomly spreading it every freaking where.


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## greggles (5 November 2018)

RFG hitting new lows over the last week as the share price dips below the 40c level. Currently at 36.5c.


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## Knobby22 (5 November 2018)

greggles said:


> RFG hitting new lows over the last week as the share price dips below the 40c level. Currently at 36.5c.
> 
> View attachment 90141



They have a lot of issues. Can they sell off some assets and reduce the debt? Can they get out of some leases?

Being declared insolvent is not out of the question. The bargain hunters pushed the price up as per usual after the big fall but now reality is setting in.

It all depends on the next six months.


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## Primate23 (5 November 2018)

Knobby22 said:


> They have a lot of issues. Can they sell off some assets and reduce the debt? Can they get out of some leases?
> 
> Being declared insolvent is not out of the question. The bargain hunters pushed the price up as per usual after the big fall but now reality is setting in.
> 
> It all depends on the next six months.




At this point the debt is multiples of the value of any equity in the company, meaning it could sell the entire company and still not make much dent in the debt.  So no.  I don't think selling of its most profitable brands is going to be a solution here, and I dare say any lender might have some restriction over them selling cash generating assets as well.


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## greggles (14 January 2019)

The AFR is reporting that RFG is in talks with PAG Asia Capital regarding the possible sale of Crust Gourmet Pizzas. RFG released the following announcment this morning in response to the speculation:


> Retail Food Group Limited (ASX:RFG) notes the comments in today’s Australian Financial Review
> regarding the potential sale of assets by RFG, including Crust Gourmet Pizzas. The company confirms, as previously announced, that it will be seeking to reduce its debt by various means, including the investigation of the possible sale of assets.
> 
> That process is ongoing, although no formal binding agreement has been reached with any buyer at this stage in respect of any of RFG’s assets.
> ...




In order to survive it is imperative that RFG reduce its debt load. Although selling off assets is a double edged sword. Buyers will only be interested in the best performing brands, leaving RFG with the leftovers. Still, it appears that RFG has been backed into the corner and now must sell assets to pay down debt.

This morning's announcement has given RFG a small bounce, up 11.9% to 33c.


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## Knobby22 (14 January 2019)

Well greggles, if they get a decent price as rumoured and the turn around specialist is effective then maybe there is a future. I saw the rumoured buyers own The Cheesecake Shop chain.
Brave to buy shares now though.


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## greggles (14 January 2019)

Knobby22 said:


> Well greggles, if they get a decent price as rumoured and the turn around specialist is effective then maybe there is a future. I saw the rumoured buyers own The Cheesecake Shop chain.
> Brave to buy shares now though.




I agree. They will need to get a good price. The problem is when your back is up against the wall, it doesn't leave you in a good negotiating position. Of course, RFG don't have to sell if they don't get the price they want. But I suspect that PAG Asia Capital will be looking to get a bargain given that RFG is in a difficult financial position. What smart buyer doesn't want to take advantage of a distressed seller?


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## kirtdog (25 January 2019)

RFG stands for Really F&@$ed Group


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## greggles (21 February 2019)

More bad news for RFG.

https://www.news.com.au/finance/sma...r/news-story/ad18a28b6e6ccc05b2dad328266c05e3

Now that one franchisee has had success through litigation, I wonder how many more will now turn to the legal system to recover financial losses incurred as a result of any alleged misleading representations by RFG.


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## Ann (1 March 2019)

*Embattled Retail Food Group slumps further*

_Struggling Gloria Jeans and Donut King operator Retail Food Group has slumped to an $111 million first half loss as cafe sales dive, outlets are shut, and poor press clings to franchise opportunities.

Profit at the Brumby's Bakery, Crust, and Michel's Patisserie owner fell by 25 per cent for the six months to December 31 following $123.7 million in impairments, write-downs and provisioning, while total revenue dipped 3.4 per cent to $170 million.

The company said full-year earnings are expected to slide by at least a 32 per cent.

Retail Food Group has struggled financially since accusations in late 2017 that its franchisees had been run into the ground with exorbitant fees, high marketing and food costs, poor quality food and a lack of support.

The company registered a $306.7 million full-year loss in FY18 and accelerated its store closure program in August. More..._


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## greggles (13 March 2019)

Retail Food Group publicly denies media speculation in The Courier Mail that the RFG board is considering appointing administrators to the company.


> 12 March 2019
> 
> *MEDIA SPECULATION INACCURATE*
> 
> Retail Food Group Limited (ASX:RFG) notes speculation in an article published in today’s Courier Mail suggesting that the RFG Board was currently contemplating the appointment of administrators to RFG. RFG’s Board denies the accuracy of the article, and further notes that no approach was made to RFG to verify aspects of the article before it was published today.




RFG now under 20c and seeing serious dumping this month following the release of its 1H19 Financial Results on 28 February.


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## Darc Knight (15 March 2019)

*Retail Food Group hoses down concerns it is in financial strife, but regulators could start circling.*
Key points:

Retail Food Group has defended its financial position, saying it is in dialogue with its lenders
The company been accused of continually opening new outlets, some of which were unlikely to be viable, to profit from upfront fees
A parliamentary inquiry said there had been a "lack of comprehensive, systemic and forensic investigations by the regulators" and wants them to now act
https://mobile.abc.net.au/news/2019-03-15/rfg-hoses-down-concerns-it-is-in-financial-strife/10902194


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## Smurf1976 (15 March 2019)

Noticed there's a lot of buyers lined up for ~ 2 million shares in the 15 - 16 cent range, plus however many more sitting on the sidelines.

Assuming they don't suddenly disappear it would take a bit of effort to go meaningfully lower from this point, at least in the short term.


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## peter2 (29 March 2019)

@Smurf1976  Good observation. RFG has had a remarkable week +~50%. Is the bottom in ?


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## greggles (5 July 2019)

RFG Executive Chairman Peter George on turning around Retail Food Group.

https://www.news.com.au/finance/bus...r/news-story/0c1b7f2bd56e7fe619654f78b9bae577

Sounds to me like he's fighting a losing battle. With $260 million in debt due at the end of October they had better start flogging off some assets pretty quick.


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## Country Lad (5 July 2019)

I find the concept of asset sales of companies in difficulty interesting.  Usually the scenario is that the only assets anybody is willing to buy are the profitable ones and for a bargain basement price.  Then the company is left with stuff that doesn't generate a worthwhile income and they go down anyway.
In the case of RFG, no way can they realise enough funds from asset sales and still have a viable business.


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## Smurf1976 (6 July 2019)

Country Lad said:


> In the case of RFG, no way can they realise enough funds from asset sales and still have a viable business.



I follow your thinking but then the price was up over 20% on Friday so _someone_ thinks there's a good deal here.

Whether that someone is right or not is another matter..... 

I do not hold.


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## notting (8 July 2019)

Up nearly 100% in 2 days!
Strong volume. More volume today already than the big total volume Friday.
On a Monday it matters more to me because people have the weekend to chill and so what they got carried away with last week often does the same (chills on Monday morn).  Not RFG today.
Somethings up!

Here's my stab in the dark-
Who ever walked away from trying to buy Donut King off them is maybe buying up shares in the whole company which is probably cheaper than what RFG wanted for Donut King.
They could have a crack at all of RFG, but if they are smart they would sit back after taking a stake.  Let if fall again then have a crack at it.  Given the covenants have been liberated to some degree there is less risk of a default, so sitting on some stock is less risky once they get a mouthful.
Noting that it also kicked off at these levels on the 28 March with big volume


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## Country Lad (9 July 2019)

Well there you have it.  No real reason for the shareholders to be happy. My emphasis.

_"It is understood the funds were recently told their proposals were no longer being considered as it was now dealing exclusively with a local fund, Soliton Capital.

Soliton is backed by Hong Kong based SSG Capital Management and it is talking to RFG about becoming a strategic investor.

Equity investors are expected to face a heavily dilutive capital raising.

That sounds like something the ASX and investors might have thought worth knowing about in light of the recent share price movement. The reality is the deal is at a stage where it shut down talks with other serious players.

The speculation is Soliton could inject $100 million - or more - into RFG to help pay down its $260 million pile of bank debt which is due to be refinanced in the third quarter of the year and which the banks are understood to have been eager to reduce their exposure.

Under the deal the banks would get 100 cents in the dollar. Equity investors, on the other hand, would face a heavily dilutive capital raising, with *Soliton emerging as the dominant shareholder and existing shareholders virtually diluted out of existence*. The only asset for sale is Dairy Country, which is likely to fetch $20 million. The other businesses such as Pizza Capers and Crust, have struggled to find a buyer."_
https://www.theage.com.au/business/...-not-let-the-market-know-20190709-p525j5.html


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## tech/a (9 July 2019)

There you have it 
A storm in a tea cup


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## galumay (9 July 2019)

*coffee cup.


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## Garpal Gumnut (12 July 2019)

tech/a said:


> There you have it
> A storm in a tea cup




I have heard that Sgt. Schultz has been taken on as a special advisor to RFG

gg


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## Country Lad (12 October 2019)

Country Lad said:


> ......._ *Soliton emerging as the dominant shareholder and existing shareholders virtually diluted out of existence*....... _
> https://www.theage.com.au/business/...-not-let-the-market-know-20190709-p525j5.html




Even with this one-sided deal with all the benefit going to Soliton, the proposal fell over, assuming Soliton did not like what they saw in the books and concern over all the possible class actions.

But don't worry, the directors of RFG now have an even better deal for the shareholders.  A minor raising of only 1.5 Billion shares at 10 cents per share and at a slight discount of only 41% to the last price.  But don't worry about the dilution, the number of shares will increase by only 8 times.

But wait, there’s more! The number of stores will fall from 939 to 827 but don’t you worry about, that because its underlying earnings will increase over the same period.  More money extracted from fewer franchisees?

The Investor Presentation is only 52 pages long and 2.5MB. My suggestion is not to bother wasting the bandwidth.

I can recall the old adage - don't invest in a company with an executive chairman.


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## Smurf1976 (16 October 2019)

Country Lad said:


> the directors of RFG now have an even better deal for the shareholders.  A minor raising of only 1.5 Billion shares at 10 cents per share and at a slight discount of only 41% to the last price.



Announcement today (Tuesday) that the placement will be at 10c / share and raising $170 million so an increase to 1.7 billion shares.

Also the investor presentation available. 

Market response seemed interesting - opened at 12.5c versus previous close of 17c so down sharply then spent most of the day around 14c and closed at 14.5c.

Those with an interest in the stock would probably be best to read the presentation for more details.


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## Dona Ferentes (16 July 2021)

up from 7 to 9.5c over the last few days. Volume there, too  


Any views?  Lockdowns?


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## greggles (16 July 2021)

Dona Ferentes said:


> up from 7 to 9.5c over the last few days. Volume there, too
> 
> 
> Any views?  Lockdowns?




I thought RFG was going to go under because of COVID-19. They were already in deep trouble before COVID hit and I was sure the pandemic would finish them off, given that their franchises were mostly located in shopping centres.

To be honest, I'm amazed that they are managing to keep their head above water given what has happened in the last year and a half.

They have announced nothing of note since their 1H21 Financial Results back in February. No idea what is causing its share price to rise today, but I'm sure we will all find out in the very near future.


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## galumay (16 July 2021)

One of the Deep value funds, with a reasonable record at picking the bottom, gave them a talk up this week. Collins St Value were talking with Chris Judd. 
Having been burnt once, I wouldn't touch them with a bargepole, but that may be part of the reason for the signs of life!


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## qldfrog (16 July 2021)

Dona Ferentes said:


> up from 7 to 9.5c over the last few days. Volume there, too
> 
> 
> Any views?  Lockdowns?



I actually bought 2 days ago, it is either the bottom and we grow from now..or will collapse and be gone in 6m.
At that price, it is a bet i was ready to take in the investor portfolio.
Time will tell byt read more positive news about this stock this month too..so my looking then buying


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## peter2 (8 September 2021)

Seems *RFG* has got a pulse. The chart looks quite bullish after the higher low, following the price rally in July21. As *RFG* remains in intensive care, it's not for me either but it may interest others. I'd recommend looking through their last report. It seems they've made a profit.


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## Smurf1976 (8 September 2021)

peter2 said:


> Seems *RFG* has got a pulse.



In terms of fundamentals, I'm thinking that they might actually gain from the whole pandemic situation once lockdowns end if they've survived and a portion of smaller competitors (sole traders and other small operators) have been wiped out which, anecdotally at least, would seem to be the case.


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## Garpal Gumnut (8 September 2021)

peter2 said:


> Seems *RFG* has got a pulse. The chart looks quite bullish after the higher low, following the price rally in July21. As *RFG* remains in intensive care, it's not for me either but it may interest others. I'd recommend looking through their last report. It seems they've made a profit.
> 
> View attachment 129985



I agree @peter2 . Chart is a watcher but fundamentals are a no no. 

Not for me neither.

gg


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## galumay (8 September 2021)

You might be right, @Smurf1976, mind you I suspect there are much better companies to put capitial into! The share count has exploded to over 2 billion shares, still quite a lot of debt to service. I dont think I will be reinvesting in this business!


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## bsnews (8 September 2021)

The head lease is owned by RFG and sub leased out to sole traders or mum and dad partnerships. They will not gain from the pandemic no cafe can, they will be in the process of or have gone broke. Rents, wages have not stopped. But if RFG have another sucker they can just put another log on the fire.


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## Miner (9 September 2021)

Great discussions and RFG has dived down on a depressed market much lesser than many others however.
the director let his rights lapsed but must have a recovery plan to recoup the loss in another form ?? 






			https://cdn-api.markitdigital.com/apiman-gateway/CommSec/commsec-node-api/1.0/event/document/1410-02412830-6EVHB7KVHFASKUN68AGU43O652/pdf?access_token=0007ZZy1Awb80HTaTlhix9tUbAx9


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## greggles (7 May 2022)

I honestly thought the COVID-19 pandemic would have wiped RFG out but no, they are still out there suing their failed franchisees and defending a class action.



			https://www.news.com.au/finance/business/retail/we-gave-them-all-we-could-retail-food-group-drags-failed-franchisees-to-court-over-unpaid-debts/news-story/6e125d122167192923a31c3694995021
		


This company has caused a lot of people a lot of misery. I feel sorry for their franchisees, both past and present.


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## divs4ever (8 May 2022)

greggles said:


> I honestly thought the COVID-19 pandemic would have wiped RFG out but no, they are still out there suing their failed franchisees and defending a class action.
> 
> 
> 
> ...



 the business model will have to change ( if the company survives )

  in 2010/2011 i was residing in a district ( 60 metres  from the shops/business district ) where i got to observe several RFG franchisees  and realized  that most ( except maybe the hot-bread bakery )  were fad/fashion driven  and it would be hard for them ( the franchisees ) to have a long-term career in them ( sure that coffee shop could convert to a fashion jewelry retailer , or something  later  , but not without cost and effort  , AND the franchisee was less likely to OWN the premises they were operating from )

 IF the work from home trend ( for office-workers ) continues ( after the virus lunacy vanishes ) several franchises will remain under a LOT of pressure 

 can RFG  survive with just one vibrant franchise ( hot bread )

 i guess time will tell


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