RFG - Retail Food Group

[ROE]

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

 

[Ves]

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.

 

[ROE]

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....

 

[ROE]

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

 

[ROE]

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%

 

[VSntchr]

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?

 

[VSntchr]

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?

Anybody?

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

 

[McLovin]

What are your assumptions in the DCF model?

 

[VSntchr]

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.

 

[tinhat]

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.

 

[McLovin]

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.

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.

 

[Ves]

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.

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]

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]

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]

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.

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]

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.

 

[ROE]

[SUP][/SUP]

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.

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]

[SUP][/SUP]

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

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

Do you use DCF valuations, ROE?

 

[ROE]

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]

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!