(RFG) Donut King ++ BB's Coffee

[mamos]

With the completion of the Brumby’s acquisition RFG’s debt to equity ratio stood at 60% [ND/(ND+E)].
This sits at the upper end of RFG’s preferred debt to equity range of 40% to 60%.
�� Following the completion of the Michel’s acquisition (and assuming all debt funding) RFG’s debt to equity
ratio would increase to 80% which sits outside its acceptable debt to equity ratio range. The Michel’s
acquisition is subject to completion of RFG’s due diligence enquiries and is due for settlement late
November.
�� In conjunction with the acquisition of Michel’s RFG is reviewing its capital management. Such review will
take account issues such as additional equity requirements and the current shareholder register including
liquidity.

Are you guys worried about the debt levels at all.

My analysis below extracts from company announcements:

Brumby's
The Company expects that the compulsory acquisition in respect of acceptances not received pursuant to the offer will be completed by mid-September 2007. The Company expects the total acquisition cost to be approximately $45.8 million. The acquisition cost except for $2.76 million has been funded from debt.

Michel's
The consideration payable to TMGA shareholders is $50 million cash and a scrip
component being subject to an incentivated earn-out program based on TMGA FY2008
adjusted EBIT performance. TMGA shareholders will be entitled to be issued with RFG
scrip on a pro rata basis where TMGA’s adjusted FY2008 EBIT is between $13.25
million and $18 million.

TMGA also has debt of approximately $56 million which will either remain with the
company on completion of the SCTA or be refinanced by RFG.

I have assumed the cash consideration for the Michel's deal will be fully debt funded which may or may not be incorrect.

RFG Borrowings 30 June 07 24372000
Funding for Brumby's 43000000
Brumby's Debt 31 Dec 06 approx 2000000
TMGA Funding 50000000
TMGA Debt 56000000
Total $175,372,000

$175m in debt with very minimal few tangible assets to back this up. Most of the assets comprimise intangible assets. Although the FCF's are strong, I am uncomfortable investing in RFG with this level of debt as what I am buying is effectively a whole lot of debt that will take many years to clear from the earnings of the company, and even longer if dividends are continued to be paid to shareholders.

[tommy]

Hi Bobby, mamos et al

RFG full year accounts released:

http://sa.iguana2.com/cache/124176d1...RFG-192049.pdf

Nothing much in there... yawn.

[tommy]

Now RFG forecasts a minimum EPS increase for FY2008 over FY2007 of 50%.
Funding structure still under review though. yawn!

http://sa.iguana2.com/cache/eaaa76cf...RFG-192072.pdf

ASX/media release
TMGA DUE DILIGENCE UPDATE & EPS GUIDANCE


On 7 September 2007 Retail Food Group Limited ('RFG') announced that it had entered into
a conditional Scrip & Cash Terms Agreement ('SCTA') to acquire all of the issued shares in
The Michel's Group Australia Pty Ltd ('TMGA').

TMGA is the intellectual property owner and manager of the Michel's Patisserie franchise
system ('Michel's'), a well known Australian food retailer which specialises in the sale of
cake, coffee and patisserie related products. As at 7 September 2007, there were a total of
340 Michel's Patisserie franchised outlets in Australia and a further 6 franchised outlets in
New Zealand.

The acquisition is subject to a number of conditions including shareholder approval, ASX
affirming the terms of the performance shares which will be issued in connection with the
incentivised scrip based earn-out and satisfactory completion of RFG's due diligence
enquiries.

RFG is pleased to announce that its due diligence enquiries have been satisfactorily
completed and that the SCTA is no longer subject to this condition.

RFG will keep the market informed as to satisfaction of the remaining conditions precedent to
the acquisition in accordance with its disclosure obligations.

Further to the revised guidance provided by the Company on the 7 September 2007, RFG
has continued to review its capital management strategies and in particular to resolve an
appropriate funding structure for the TMGA acquisition. Such review is ongoing.


In respect of FY2008, RFG has also previously indicated that the TMGA transaction would
be EPS accretive. Whilst the quantum of that increase will depend upon the funding structure ultimately adopted, the Company's Directors are of the belief that the TMGA transaction combined with the Brumby's take-over (which was completed on 3rd September 2007) will result in a minimum EPS increase for FY2008 over FY2007 of 50%.


RFG CEO Tony Alford said that "the Company's Board of Directors remain extremely excited
about the TMGA acquisition and the benefits which will flow from it, not only in favour of
Retail Food Group and its shareholders, but also the stakeholders in each of the Michel's
Patisserie, Brumby's, Donut King and bb's cafe franchise systems Retail Food Group is a leading Australian retail food brand manager and franchisor. It is the franchisor and intellectual property owner of the Donut King, bb's cafe and Brumby's systems. As at 28 September 2007, there were a total of 686 outlets comprising 324 Brumby's stores established in Australia and New Zealand, 292 Donut King stores established in Australia and a further 70 bb's cafe stores established within Australia and New Zealand.

ENDS

[tommy]

RFG struggling to break two dollar mark, still hovering around $1.90.

http://bigcharts.marketwatch.com/int...x=54&draw.y=17

Suppose no action until capital arrangement is finalized... yawn.

[soulman]

Be patient Tommy. Sometimes impatient will cost you money. It has cost me plenty of money the past few months where I set a target and lowered it and eventually the original target will get hit in a few days time. It can cost plenty in the long-term.

The problem with RFG (I am not a holder) is the uncertainty surrounding the capital raising. Obviously, you know once the uncertainty has been removed, then the SP can climb again. Of course, it all depends on the take-up of the capital raising, if there is any and the price. If the price is a premium to the current share price, watch RFG go.

[tommy]

The problem with RFG (I am not a holder) is the uncertainty surrounding the capital raising. Obviously, you know once the uncertainty has been removed, then the SP can climb again. Of course, it all depends on the take-up of the capital raising, if there is any and the price. If the price is a premium to the current share price, watch RFG go.

Hi soulman,

Agree with you that capital raising is the current bottleneck. But can't see it taking place ABOVE the current share price though, more likely to be a bit below the current levels to entice instos to join in.

In the meantime, I'm gonna stick this one back under the carpet... yawn!

[tommy]

RFG finally breaches 2 dollar mark, sell side disappears :-)

Finally time for a party?

http://bigcharts.marketwatch.com/int...x=54&draw.y=17

[esprit]

Chart looking great tommy, congrats.

Whatever happened to Robbo btw? (original starter of this thread).

[_Michael]

Yeah - nice call Tommy/Robbo

Have been following but it was one of those where you wait for the pullback, but instead it just keeps charging forward, first through $1 then $2. I can also say that I am a regular user of their recently acquired bread businesses, my fiance and I have no substitute for Brumby's when it comes to good bread. It seems to be a massively successful franchise set up over here in NZ.

M

[tommy]

Chart looking great tommy, congrats.

Whatever happened to Robbo btw? (original starter of this thread).

Cheers espirit, as for Robbo I have no idea what happened to him... he just seems to have disappeared! It's a shame because his posts were fun and his stock picking skills were amazing.

Michael, thanx for the thumbs up for Brumby's! Didn't know they were popular in NZ. Anyway, RFG has always been a scary stock to hold because of its total lack of liquidity... it is virtually impossible to sell large volumes without causing the share price to plummet. Trading volume is virtually nonexistent so if someone decides to sell large holdings, the stock can tank quite a lot (though luckily this hasn't happened to date).

Let's see how RFG trading volume will change after capital raising.