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RFG - Retail Food Group

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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.
 
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).
 
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.
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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.
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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.
 
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.
 
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!
 
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.
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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
 
Tightwad said:
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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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.
 
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.
 
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.
 
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.
 
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?
 
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.
 
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.
 
Muschu said:
Hearing this from someone with your level of expertise is very helpful galumay.
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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.
 
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.
 
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.
 
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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