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  1. #1
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    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.

  2. #2
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    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.


    Respect
    TOMMY

    Disclosure: trading in and out of many stocks, too many to update the list at the moment...

    DO NOT TRUST ANYTHING I SAY OR IMPLY... USE YOUR OWN BRAIN AND RESEARCH BEFORE MAKING ANY INVESTMENT DECISIONS.

  3. #3
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    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
    Respect
    TOMMY

    Disclosure: trading in and out of many stocks, too many to update the list at the moment...

    DO NOT TRUST ANYTHING I SAY OR IMPLY... USE YOUR OWN BRAIN AND RESEARCH BEFORE MAKING ANY INVESTMENT DECISIONS.

  4. #4
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    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.


    Respect
    TOMMY

    Disclosure: trading in and out of many stocks, too many to update the list at the moment...

    DO NOT TRUST ANYTHING I SAY OR IMPLY... USE YOUR OWN BRAIN AND RESEARCH BEFORE MAKING ANY INVESTMENT DECISIONS.

  5. #5
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    Hi davidrob and ohmyme,

    RFG buy side looks thin again, might be a chance to pick up some cheapo stocks.

    Did you guys read those articles I posted above? Were you aware of these factors? Perhaps that's why the share price isn't taking off... oh well, time will tell.



    Respect
    TOMMY

    Disclosure: trading in and out of many stocks, too many to update the list at the moment...

    DO NOT TRUST ANYTHING I SAY OR IMPLY... USE YOUR OWN BRAIN AND RESEARCH BEFORE MAKING ANY INVESTMENT DECISIONS.

  6. #6
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    Legal stoushes are a reasonably common occurance in the franchise business. The number of disagreements in this instance is not especially material.

    The Juice business I think took everyone by surprise. First by its rapid expansion and then by it's rapid contraction as operators discovered how easy it is to emulate. While RFG were perhaps silly to try their hand so late, they followed quite a bit of "smart money" in doing so. I don't have any insight into the disagreements with former franchise holders but would be surprised if RFG has a contractual liability and suspect judgement will be required to clarify a moral one.

    Donut King has been a long term performer. Joint venture expansion into Asian markets would seem the most likely "winning" combination to add some growth "gloss" to the share price. The existing mature business in Australasia still has incremental growth prospects in any case. Growth by aquisitions will either be expensive or risky and new concepts are a lottery. I would be hoping they don't get too innovative.

  7. #7
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    Hi guys,
    great to be back from a month long holiday and find another great idea from the brains trust at sharetrader.

    RFG seems a very interesting prospect.

    One question: how much room for expansion is there? They already seem to have a lot of donut stores operating.

    CF Halebop's comment about Asian expansion, the western-style bakery/donut shops in China were best described as deserted. McDonalds, KFC, and Pizza Hut, however, were humming (Pizza Hut being the height of fine dining in China).

  8. #8
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    quote:Originally posted by OneUp
    One question: how much room for expansion is there? They already seem to have a lot of donut stores operating.
    500 stores possible. Plus expansion in NZ (not too many donut stores here).

    Looks like insto buying this week.

  9. #9
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    RFG.

    Legend of an investment imo.

    But you already know that.

    Kind Regards,

    Robbo
    Robbo

  10. #10
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    BTW Robbo, what would you make of Dunkin' Donuts as a competitor to Donut King?


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