(RFG) Donut King ++ BB's Coffee

[tommy]

Decided to get out of RFG, sold out my holdings completely (only a 2+ bagger this time... not happy jan!) because of the ongoing credit crunch.

What concerned me is that because of RFG's high gearing, I believe either a capital raising or debt refinancing might be in the cards in the near future.

Previously I had assumed that Australian financial institutions would not be that heavily affected, but I have reconsidered my position: the situation will probably get worse in the coming months when they disclose and write off more bad debt.

Even though I am convinced its profits would be impressive following the takeover of brumbies and michell's, I decided to opt for companies with no debt in the current climate just to make my portfolio exposed to less debt-related risks. It was a hard decision and I would have held on for much much longer it the credit crunch wasn't getting worse by the day.

Now I'm about 40% cash, getting ready to buying cheap stocks, but the problem is I'm not sure whether the market has hit the bottom yet. The XAO chart looks very bearish and small caps are getting punished heavily (a lot of them are getting hammered badly!)

Good luck to holders, I am still a fan of RFG but for the meantime, I will sit in the sidelines...

CHART:

http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=AU%3Arfg&draw.x=54&draw.y=17

[_Michael]

Decided to get out of RFG, sold out my holdings completely (only a 2+ bagger this time... not happy jan!) because of the ongoing credit crunch.

What concerned me is that because of RFG's high gearing, I believe either a capital raising or debt refinancing might be in the cards in the near future.

Previously I had assumed that Australian financial institutions would not be that heavily affected, but I have reconsidered my position: the situation will probably get worse in the coming months when they disclose and write off more bad debt.

Even though I am convinced its profits would be impressive following the takeover of brumbies and michell's, I decided to opt for companies with no debt in the current climate just to make my portfolio exposed to less debt-related risks. It was a hard decision and I would have held on for much much longer it the credit crunch wasn't getting worse by the day.

Now I'm about 40% cash, getting ready to buying cheap stocks, but the problem is I'm not sure whether the market has hit the bottom yet. The XAO chart looks very bearish and small caps are getting punished heavily (a lot of them are getting hammered badly!)

Good luck to holders, I am still a fan of RFG but for the meantime, I will sit in the sidelines...

CHART:

http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=AU%3Arfg&draw.x=54&draw.y=17

Tommy,

Still, 200% in one year is a pretty impressive result!

Agree RFG is on the list of companies holding lots of debt - and being shunned by the market. Guess it stands to reason as all four big banks have increased lending rates even before reserve bank has done anything.

Its gonna be harder and harder for businesses to lend at favorable rates.

While I think the coffee and bread brands are great must say that we're not big fans of St Michels cakes, been there twice and dissapointed both times, but maybe we ordered the wrong stuff?!

[_Michael]

17 January 2008 Significant Increase in First Half Profit Leading Australian retail food brand manager and franchisor Retail Food Group Limited (RFG) today announced that, based on unaudited management accounts, the Company's NPAT, for the
six months ending 31 December 2007 will significantly exceed (by greater than 15%) the NPAT
result achieved for the FY2007 corresponding period.

The Company's NPAT increase on the previous corresponding period is directly attributable to
the previously announced acquisitions in the second half of last calendar year, comprising
Brumby's Bakeries and Michel's Patisserie

Contributing to this result has also been a significant increase in total network franchise outlet
revenue due to strong organic new outlet growth and same outlet sales increases across the
Donut King, bb's cafe, Brumby's Bakeries and Michel's Patisserie franchise systems

CEO Tony Alford said that "the Company's business and franchise systems are performing well,
with the first half results consistent with expectations and previous guidance. Of particular note,
41 new outlet commissionings were achieved during the period across the Donut King, Brumby's
Bakeries, Michel's Patisserie and bb's café franchise systems - representing in excess of 50% of
the full year new outlet growth forecast - whilst at the same time completing two significant
acquisitions."

"Based upon the trading and operational performance to date, we maintain a positive full year
outlook for RFG as the Company progresses the physical integration process of the Michel's
Patisserie business and franchise system during the second half of FY2008." Mr Alford said.

Results for the six month period ending 31 December 2007 will be announced to the market in
late February 2008 at which time further commentary will be provided with respect to the
provisional TMGA results for the 1HFY2008 as well as the allocation of earnings between pre and
post acquisition.
As at 17 January 2008, there was a total of 4 franchise systems and 1050 franchised outlets
under RFG's stewardship comprising;
Franchise system Total Outlets Australia New Zealand Donut King 303 303 bb's cafe 69 46 23 Brumby's Bakeries 328 305 23 Michel's Patisserie 350 344 6 System Total 1050 998 52 ENDS. For further information, interviews or images contact:
Matthew Hart, BBS Public Relations, 07 3221 6711 / 0418 799 91

[tommy]

Hi micheal,

NPAT increase of 15%? Yo gotta be kidding me dude, considering their debt-equity ratio, that is not enough under the current climate to garner a higher PE ratio after such a major acquisition. They need to reduce their debt ASAP.

Don't get me wrong, I love RFG's franchise strategy (though i'm not a fan of michell's cakes similar to you) the fact is that being loaded with debt is not a positive contributor to share price under the current climate. When credit was easy peasy, debt-driven expansion was cool, but once there is a credit crunch, debt is nothing but a drag.

Until RFG clarifies this issue, I would stay on da sidelines for the sake of margin of safety...

[Bobbyvee]

Agree with you completely Tommy. I too am on the sidelines until RFG shows they can manage the debt.

[_Michael]

Agree with you completely Tommy. I too am on the sidelines until RFG shows they can manage the debt.


Yeah me too - way to many quality companies supercheap at the moment to look at borderline opps!

[Zephyrus]

How does a 90% increase in NPAT (as per the most recent announcement) sound Tommy?

I don't think a debt/equity ratio of 60% is too high... It also looks like we're now sitting on a PE of around 10, assuming the 2nd half produces a result similar to the first (although I'd imagine it will be more considering there will be a full contribution from Michel's)..

I'm back in at $1.40 after selling out around August (at $1.60).. I'm much more positive about the expansion strategy now, & with the CRF & CMF up & running, it all looks good for RFG (IMO)...

[soulman]

How does a 90% increase in NPAT (as per the most recent announcement) sound Tommy?

I don't think a debt/equity ratio of 60% is too high... It also looks like we're now sitting on a PE of around 10, assuming the 2nd half produces a result similar to the first (although I'd imagine it will be more considering there will be a full contribution from Michel's)..

I'm back in at $1.40 after selling out around August (at $1.60).. I'm much more positive about the expansion strategy now, & with the CRF & CMF up & running, it all looks good for RFG (IMO)...

Just remember that businesses like DK, Michel and Brumbys make most of their dough during the Christmas season. The second half won't be as rosy.

[Rodin]

How does a 90% increase in NPAT (as per the most recent announcement) sound Tommy?

I don't think a debt/equity ratio of 60% is too high... It also looks like we're now sitting on a PE of around 10, assuming the 2nd half produces a result similar to the first (although I'd imagine it will be more considering there will be a full contribution from Michel's)..

I'm back in at $1.40 after selling out around August (at $1.60).. I'm much more positive about the expansion strategy now, & with the CRF & CMF up & running, it all looks good for RFG (IMO)...

Austock are currently forecasting EPS of 17 cents which puts them on a PE of about 8x.

RFG's franchise model generates fairly stable cash flows which allows them to service relatively high levels of debt.

Also, the company has successfully refinanced recently. Their new debt facility has an initial term of 3 years, with 80% hedged at an interest rate of 7%.

[Zephyrus]

Just remember that businesses like DK, Michel and Brumbys make most of their dough during the Christmas season. The second half won't be as rosy.

Are you saying, soulman, that people only eat bread & cakes etc during xmas?.. Nah, I can't agree with that.. And like I said, add 6 months contribution from Michel's to the 2nd half..

[tommy]

Well done, RFG!

http://sa.iguana2.com/cache/8ea7736433173a8b5bda9e8e5794a293/ASX-RFG-197245.pdf

The Company’s EBIT for 1H08 was $16.0 million. This result represents an increase of 153.6% (or $9.7 million) over EBIT for the previous corresponding period ($6.3 million). The Company has now achieved approximately 51.8% of its forecast full year EBIT for FY08, and 50.0% of its proforma full year forecast of $32.0 million.

The Directors are satisfied and remain confident that the Company is well positioned to meet its FY08 proforma adjusted EBIT of $32.0 million.

The Company’s strong half-year result was primarily due to recent acquisitive activity together with robust new outlet openings and growth in franchised outlet average weekly sales and average transaction values.

The Company’s NPAT for 1H08 was $8.1 million. This result represents an increase of 106.8% (or $4.2 million) over NPAT for the previous corresponding period ($3.9 million).


EPS almost double from 5.5c to 10.1c

HOWEVER, operating cash flow is now almost a third...
Receipts from customers massively increased but so has payments to suppliers and employees.

THEY BETTER GET THEIR COST SYNERGIES IN PLACE SOON, OTHERWISE THIS CAN BE A DANGEROUS SITUATION WHEN LOADED WITH SO MUCH DEBT!

[winner69]

Where's Tommy these days?

RFG still doing OK and making as much as they said they would

Announcement today could be good for share price ... that hasn't been hammered too much over the last 6 months

[mark100]

This thread has gone rather quiet. Despite some reservations about RFG's management early on (myself included) they seem to have proven themselves reasonably well since listing.

They might be making a bottom at around $2.40-2.50? Funadamentals are pretty solid at the moment, sub 10 PE, ROE of around 20% and the high debt/equity that scared a lot of people is gradually coming down which will allow the dividend payout ratio to improve with time.

Not one to give spectacular returns but a potenatially nice risk/reward ratio

[Huang Chung]

Haven't looked at RFG for a while.

12 month chart isn't very pretty.

Any ideas as to why the year long sell down?

PS. Despite all the healthy eating promos etc, the is always a ton of people at our local Donut King. Not bad coffee either...

[STRAT]

is always a ton of people at our local Donut King. .
Hi HC.
That would be around 3 regular customers eh? :eek2:

[Huang Chung]

Yeah, well unfortunately I'm one of them...

mmmm...donuuuts......:)

[h2so4]

"I owe it all to little chocolate donuts.":)

[mamos]

I wonder if RFG will try to pick this up?

The Krispy Kreme doughnut chain has entered voluntary administration because of poor sales at some stores.
The locally owned Australian arm of Krispy Kreme has 50 sites across the east coast that employ a total of 650 staff.
The company has confirmed accounting firm Smith Hancock will launch a month-long restructure that could result in lay-offs. Stores are expected to remain open while the restructure is under way.
Advertisement: Story continues below
“Krispy Kreme has excellent brand recognition and good turnover and profitability in its better stores,’’ director John McGuigan said.
“However several factors, including location, sales declines, high rents and high distribution costs, have meant that a number of stores are losing money...
“Directors have determined that a restructure is necessary and the appointment of a voluntary administrator is the responsible action in view of the risk of insolvency if the company continued to operate in its current form,” Mr McGuigan said.
The company's revenue rose 6.9 per cent to $57.9 million in 2009, according to Dun & Bradstreet's Company 360 business information service. However, net profit margins were up only $62,000 or 0.1 per cent, over the same period.
“In the event that there are redundancies arising out of the voluntary administration process, all employee entitlements have been protected and will be met in full,” Krispy Kreme said.
Mike Smith and Peter Hillig have been named voluntary administrators, the company said.
“The directors believe the company’s core business, which has a seven-year history in Australia, remains strong and that a financially stable company will emerge from the process.”
Krispy Kreme opened locally in 2003. The Australian company has the sole right to use the Krispy Kreme brand name in Australia and New Zealand. The business is fully owned by KKA Holdings.

[The Big Ease]

50 sites and 57m revenue.
IF each turned over 1.1m and had a 5% margin, you should be seeing a healthy profit.
No doubt they have higher cost structures and with more than a few poorly performing stores, 5% doesnt give you much to play with.
I hope the things kicks it. The fuss people used to make when there was just one store in Sydney and work colleagues would make a point of bringing a box down.
It really used to Sh!t me. Bogan antics dont amuse me.

[Joshuatree]

Chairman's Address to AGM (http://hotcopper.com.au/announcements.asp?id=635769) CEO's Address to AGM (http://hotcopper.com.au/announcements.asp?id=635781)

1.35 million kg of roasted coffee beans!

[soulman]

Chairman's Address to AGM (http://hotcopper.com.au/announcements.asp?id=635769) CEO's Address to AGM (http://hotcopper.com.au/announcements.asp?id=635781)

1.35 million kg of roasted coffee beans!

Entered the ASX200 and getting the donut....small cap funds selling due to the ASX200 entry but no buying by the major?

[winner69]

I’d be ashamed to say I owned RFG shares .....but then again if you want to make money sometimes you need to cause misery to others along the way

But looking at the chart screwing your franchisees isn’t always a good thing long term.

http://www.smh.com.au/business/retail/cup-of-sorrow-the-brutal-reality-of-australias-franchise-king-20171207-h00lbl.html

This network has created a lot of human misery. They're all unhappy. I haven't met a happy one.

[peat]

I’d be ashamed to say I owned RFG shares .....but then again if you want to make money sometimes you need to cause misery to others along the way

But looking at the chart screwing your franchisees isn’t always a good thing long term.

http://www.smh.com.au/business/retail/cup-of-sorrow-the-brutal-reality-of-australias-franchise-king-20171207-h00lbl.html

This network has created a lot of human misery. They're all unhappy. I haven't met a happy one.

It seems amazing that the directors confirmed guidance and then six days later changed their mind about that.
I investigated this company and it ticked quite a few boxes but something pushed me away.
I note Motley Fool had recommended it several times and it was recently $7 (but have today put out a sell now that its below 2.00)

A very scary loss of wealth here. I would say that the business model is flawed in that it profits in too many ways off its franchisees. Those franchise fees arent unusual, I've seen them in other operations, but with the supply chain eating itself it turns into a race to the bottom.

[winner69]

Weird that management are blaming everything and everybody for this fiasco .....not our fault.

[Joshuatree]

Way over 2000 franchises and its all coming apart. I know a guy who has been averaging down on this; reminds me of aeons ago when i did the same with Brierleys re in 87. Big lesson that one.

[winner69]

gee whiz ... another shocking day ..... down 18%

[winner69]

RFG resumes trading on Monday after another shocker report

If you like 'bloodbaths' this could be a good one

Might be some decent spikes up fpr the brave

https://www.smh.com.au/business/companies/nightmare-for-rfg-franchisees-and-shareholders-just-getting-started-20180302-p4z2lu.html

In a nutshell, RFG has put profits before franchisees and it is now paying the price. The quality of food it sells to franchisees who then sell to customers has deteriorated and the prices have gone up, causing customers to flee and revenues to fall.

[percy]

It seems amazing that the directors confirmed guidance and then six days later changed their mind about that.
I investigated this company and it ticked quite a few boxes but something pushed me away.
I note Motley Fool had recommended it several times and it was recently $7 (but have today put out a sell now that its below 2.00)

A very scary loss of wealth here. I would say that the business model is flawed in that it profits in too many ways off its franchisees. Those franchise fees arent unusual, I've seen them in other operations, but with the supply chain eating itself it turns into a race to the bottom.

Yes it is not only RFG [food] model that is flawed.
Lawn mowing,carpet cleaning,house cleaning,petrol stations,book shops,the list just keeps on growing.
A great number of "self employed" working for next to nothing.Most would have used their home as security to finance buying their franchise.Grim future for hundreds of hard working battlers.

[percy]

Interesting to note RFG are trading at $1.265.May seem cheap, as they once traded over $7.00.
Must admit I think anyone buying at these prices is very brave.
The fizz is well and truly out of the bottle.

[Recaster]

RFG have been through a restructure and share issue. Currently around the AUD 7 cents region. They seem to be profitable now.

[duncan22]

Those are two great last posts to read together! $1.26 may seem cheap, once traded over $7, now 7c. This is a tough game.

[Recaster]

Had a look at this company quite recently as a friend thinks it's going to have a run sooner or later.

Here's the latest accounts recasted; interims to 31 December, 2021:

https://recastinvestor.substack.com/p/update-retail-food-group-rfgasx

And the annual accounts to 2 July, 2021:

https://recastinvestor.substack.com/p/basic-analysis-retail-food-group

[Recaster]

This stock is looking very weak at the moment. Yesterday it traded between 3.9 and 4.1 cents, half of where it was for most of this year.

The only recent issues seem to be the debt extension (a positive) and the ongoing ACCC problem which is dragging on interminably.

Any other information out there on this stock?

[Recaster]

Earnings guidance was released today through the ASX. Things looking ok compared to forecasts. The stock bounced on the news. Currently 4.5 Australian cents.

[Recaster]

Latest look at this company:

https://recastinvestor.substack.com/p/retail-food-group-rfgasx

[Recaster]

Rfg has had a decision on its litigation issues and will pay a significant fine. With these issues behind it the stock has started to move.

Disclosure: Not invested

[nztx]

Rfg has had a decision on its litigation issues and will pay a significant fine. With these issues behind it the stock has started to move.

Disclosure: Not invested


Interesting, but the pack of balance sheet cards looks like it's stacked the same way as NZX: MFB & MPG :)

If a strong wind from an unfavourable direction should blow .... :)

[Recaster]

Stock has been moving up strongly, now at 9.3 cents AU.

[nztx]

Stock has been moving up strongly, now at 9.3 cents AU.

ASX stocks in places move in strange & mysterious ways which ignore what the picture portrays :)

[nztx]

Does Donut King sell coffee?

I remember being disappointed I could not get a coffee there a long time ago.

must be a more recent thing unless you tried during Covid lockdowns :)

[Recaster]

10.5 cents in AU today.

[Recaster]

Capital raise was announced a few days ago. Part of it was an offer to shareholders at 8 cents. The SP at the time was over 10 cents. SP dived on the announcement to below 8. Currently 7.4 cents. Wiped around AU$ 50 million off the market cap.

[Recaster]

A look at the interim accounts to 30.12.22.

Needless to say EBITDA is highlighted by the company but their profits are actually falling.

Interims HY23 (https://recastinvestor.substack.com/p/update-retail-food-group-rfgasx-1e2)

[Recaster]

FY23 out today:

Finals FY23 (http://research.iress.com.au/IDS/old/20230823/02700670.pdf?uid=54A860D78A6E55CA63E457318CEA4B714 7360000A5443903780DE640093D250091850000&ppv=)

Share price softened up on an improved core result but non-core expenses created an overall significant loss. Recast operating cash flow doesn't inspire.