(RFG) Donut King ++ BB's Coffee

[tommy]

Hi all,

RFG bounces back from a low of 74.5c to 80c, damn I wanted to buy more at low 70s but missed the boat[|)]

Still very low volumes so it looks like it's gonna take a while for RFG to see the limelight... no investor presentation or analyst report yet, surely those who bought in the float don't want the stock to remain below the IPO price? Yawn.

[ohmyme]

Definate game playing here Tommy. This morning the depth looked sick, with sellers down to 75c, and some poor sod selling their shares for 74.5c to another lucky sod.

Now have a look at the depth, 250k and 100k+ bidders all the way up to 79.5c

Patience is the key with this one. I dont see why this one would not trade at a PE of 15 like the broader market. 50% upside based on historical results. When you factor in growth potential and acquisition potential (this is the biggie IMO) then $2.00+ share price is not out of the question.

I hold stacks.

cheers.

[robbo]

Retail Food Group (RFG)

Hi Tommy,

Was also buying quite a few in that little "window" at between 75-77 cents range... to add to my RFG holding.

Have also been adding to ISS and ITe (ITE) significantly over last 3-7 days.....& especially yesterday....

Tommy, IF.... you quietly look at the first 3 or 4 lines --(ON RFG) , that is, on my sources, 2 different Funds -- in the Depth--whihc is why there is a sudden 500,000 odd shares in the Depth at 76, 77, 79, 80 and above Share Price on the Retail Food Group (RFG) BID/BUY Side.

This has only occured Today; as of only 1/2 hours ago, from approx: AEST at 12.30 pm... (19/9/06).

Gotta fly...

Kindest Regards,

Robbo

[robbo]

Hi ohyme,

You must have posted at same second as me !!

BTW, wonder who the lucky sod/s are/were ??

And also, besides.... errrrr ..... why did they sell ??

Regards,

Robbo

quote:Originally posted by ohmyme

Definate game playing here Tommy. This morning the depth looked sick, with sellers down to 75c, and some poor sod selling their shares for 74.5c to another lucky sod.

Now have a look at the depth, 250k and 100k+ bidders all the way up to 79.5c

Patience is the key with this one. I dont see why this one would not trade at a PE of 15 like the broader market. 50% upside based on historical results. When you factor in growth potential and acquisition potential (this is the biggie IMO) then $2.00+ share price is not out of the question.

I hold stacks.

cheers.

[tommy]

Hi davidrob and ohmyme,

Hahaha, so it looks like we were all watching the suspicious activity in RFG this morning at the same time[:I]

The average price of my holdings is 81c at the moment, I was hoping to bring that down a bit but no luck...

Robbo, good on ya for picking up on the cheapo side, I think I might have been a bit too greedy waiting for low 70s!

ohmyme, you suggested acquisition but who could RFG buy?? I would have assumed that organic growth is their focus?

[robbo]

RFG

Reckon that ohyme might be Right On the Money with that hypothesis Tommy...

Aqusition, after all is one of RFG's "raison d etre"....

And my own feeling is within 2 months...

Kindest Regards,

Robbo

[ohmyme]

Tommy, read the prospectus. Its basically the emphasis of the entire document, that the management have built up expertise through their franchise of BBs and Donught King, and that there were many opportunities in the market place to buy out other brands in coffee and food etc, who lacked the muscle etc to make it work under the franchise model.

I am sure that this will be one of the major price catylysts for RFG. In addition as I think Robbo has pointed out, check out the resumes of the management team behind RFG. Wow! is all I have to say.

[tommy]

Hi guys,

err... you are totally right! Didn't read the prospectus properly, I just scanned through the figures (lazy me)

Prospectus:
http://www.rfg.com.au/rfg/prospectus...pectus_new.pdf

2.4 Retail Food Group’s growth strategy
The Company has in place a clear and defined strategy for driving
growth. The key elements of this strategy include:
- continuing to achieve consistent and sustainable growth in new
outlet openings
- driving Outlet Average Weekly Sales growth
- the CMF pilot which if successful, will be rolled out on a national
basis allowing centralised manufacture and distribution of fresh
food products into the majority of outlets
- continuing development of the Donut King and bb’s café
menus to increase customer purchase frequency and average
purchase value
- encouragement of multi-outlet Franchisees
- assessing and undertaking suitable acquisitions
- expansion of the Company’s brands internationally.

[tommy]

I was just digging more info on RFG and found this at the FloatTank:

Does anyone know anything about this so-called legal action?

______________
http://www.floattank.com.au/focus.ph...rintfriendly=Y

Retail Food Group

Company: Retail Food Group (RFG)
Status: Listed
Amount Sought: $ 35,500,000.00
Issue Price: $ 1.00
Shares on Issue: 35,500,000
Closing Date: 16 Jun, 2006
Listing Date: 22 Jun, 2006
Stag Price: $ 0.92
Last Price: $ 0.82 (19 Sep, 2006)
Website Address: http://www.rfg.com.au
Organising Broker: Wilson HTM
Phone: 07 5591 3242
Recommendation: Avoid
Review Date: 25 May, 2006

Mmm … doughnuts. The prospectus for Retail Food Group explains that its principal business, Donut King, ‘operates within the “impulse buy”, “reward” and “treat” segments of the food retailing sector’, and they’re not kidding. We must confess that we at The Intelligent Investor occasionally succumb to our impulse for doughnuts on a Friday afternoon. But are the shares in Retail Food Group likely to ‘reward’ and ‘treat’ investors?
The company operates Donut King as a franchise network, but there’s more to it than ‘mere’ doughnuts. It also acts as the Australian and New Zealand franchisor of the bb’s café chain. All told, the company operates 261 Donut King outlets and 41 bb’s café stores in Australia, with an additional 25 coffee shops in New Zealand.

The company has a simple, but highly effective, business model. Store operators pay it marketing contributions and franchise fees. The marketing contributions are set aside in a fund to be spent on marketing and advertising promotion for the two brands, so they don’t contribute directly to profit.

The franchise revenue, however, is highly profitable. The company charges franchisees initial set up fees, training fees and a percentage of weekly sales. In return, they get some administration services, such as negotiating bulk purchasing agreements, and training. The other main expense for the company is staff wages for two teams, one dedicated to sourcing new franchises and the other for setting up the new stores. It all adds up to some excellent financial results. The company is expecting to make earnings before interest and tax (EBIT) of $10.1m in 2006, on revenues (excluding marketing revenue) of $19m – a margin of 53%.

The company’s main attraction is a scaleable business model. As shown above, the company generates fantastic margins because the expenses are low and largely fixed. That means a large part of revenue growth flows straight through to the bottom line. So, if the company can successfully execute its business plan of opening 15–20 new stores a year, it should be able to grow revenues at a significantly higher rate than expenses, and record double-digit earnings growth.

Retail Food Group is forecasting a net profit of $7.4m and earnings per share of 10.3 cents in 2007, placing the stock on a forecast PER of 9.7 at the $1 issue price. When combined with a prospective fully franked dividend yield of 6.25%, that looks pretty attractive. But as always there are two sides to any story.
[b]
While the company appears to be on the right track now with the Donut King and bb’s café franchises, it doesn’t have a flawless track record. The company jumped on the juice store bandwagon a few years ago and started up its own franchise network called Juice Fusion. This idea lasted less than two years and caused a lot of financial pain.

This is part of the reason the company has resorted to using ‘adjusted’ historical EBIT figures in the prospectus. Basically the numbers look a lot better if management’s stuff-ups over the past few years are ignored. The table below shows how the company has actually performed recently compared to the adjusted earnings figures.

2003 2004 2005
Adjusted EBIT ($m) 7.6 8.3 8.9
Actual EBIT ($m) 2.2 6.8 6.1

A review of the prospectus also reveals a few red flags over corporate governance. Individually they look pretty innocuous, but they do build up. Firstly there is the relationship wi

[tommy]

mmm, read this:

____

http://franchisetalk.net/2006/05/30/...-in-the-donut/

A hole in the donut?

30th May 2006

doughnut555.jpg

Daily Telegraph:

SOON-to-float Donut King has defended itself against criticism it sugar-coats financials, wastes store-owners’ money on the CEO’s race car and faces legal claims which could cost millions.

Criticisms have been made by IPO analysts Float Tank, which has told would-be investors to “avoid” the $37 million offer by Retail Food Group — the company behind the 260-strong Donut King franchise.

“At the time of the prospectus, Retail Food Group was facing two separate legal actions, with the threat of another raft of claims from franchisees of the company’s former Juice Fusion operation,” Float Tank said in its report on the RFG offer.

“The damages bill and legal fees from such claims could potentially run into the millions, and any adverse decisions might put quite a dent in the company’s earnings.”

However RFG CEO Tony Alford said “litigation potential” needed to be “put in perspective”. After including its chain of bb’s cafes, the company had 330 franchisees, yet it was facing only two actions.

“Two out of 330 is a fairly low strike rate,” Mr Alford told The Daily Telegraph.

In the RFG prospectus, the company’s directors said they did not believe the former Juice Fusion franchisees have a “valid claim”.

Float Tank also questioned RFG for having “resorted” to adjusted earnings figures in the prospectus.