ASX:RFG
Retail Food Group Ltd
Investment Summary
The fund managers believe that Retail Food Group Ltd (RFG) has shown strong resilience and opportunity for growth following a significant restructuring and overcoming past management issues. In their opinion, the removal of regulatory pressures from the ACCC and a positive response to their strategic changes have positioned RFG favorably post-COVID. The success of brands like Gloria Jean's, which reported an 11% growth in 2022, suggests a recovery in consumer demand and market confidence. They assert that the company is undervalued, trading at just 7.5x 2024 earnings, indicating potential for substantial upside. Additionally, with notable investments from groups like Thorney Investment Group and United Petroleum, the fund managers foresee further stabilization and growth for RFG in 2025. Thus, they remain confident in the company’s turnaround and are optimistic about its future performance as growth fundamentals take precedence over previous uncertainties.
Commentary From The Managers
Collins St Asset Management
31 Dec 2024
$2.55
- Collins St Asset Management highlights RFG as a fundamentally good company despite its checkered past.
- The market's recognition of RFG's intrinsic value is deemed crucial to prevent competition from capitalizing on this.
- In the last six months, Thorney Investment Group and United Petroleum Group have entered RFG’s registry, indicating growing investor interest.
- United Petroleum currently owns 19.9% of RFG, and Thorney owns over 5%.
- There are no guarantees about future developments; however, Collins St Asset Management remains optimistic about 2025.
- Positive expectations are indicated for many of the fund’s holdings.
Collins St Asset Management
30 June 2023
$2.28
- Collins St Asset Management first bought Retail Food Group (RFG) in 2021, anticipating post-Covid normalization to benefit the company.
- Belief that RFG was priced cheaply due to the overhang of an ACCC case related to past management issues.
- Pleased with management's strategic pivot, being selective in new franchisee acquisitions.
- RFG has made lasting adjustments to adapt to the new normal, such as launching a virtual ribs business, "Rack’em Bones BBQ Ribs".
- This initiative utilizes existing pizza ovens during downtime to create additional cash flows and profits.
- Continues to appreciate the positive cultural change and future growth prospects, both locally and internationally.
- Observations of insider stock purchases indicate confidence in the company's future.
- Currently trading at 7.5x 2024 earnings, suggesting significant upside potential for Retail Food Group.
Collins St Asset Management
31 Dec 2022
$3.48
- Collins St Asset Management first invested in Retail Food Group in 2020 during a turnaround phase.
- Two key factors identified:
- Return to post-Covid normal with a focus on local coffee and cake shops.
- Removal of overhang related to ACCC actions against previous management.
- Resilience of the company’s brands has been surprising, with successful strategies like shrinking to greatness.
- Brands such as Gloria Jean's (11% growth in 2022) and pizza offerings (10% growth in 2022) continue to grow despite challenges.
- Investor disinterest linked to litigation overhang and costs of settlements.
- Initial speculations regarding settlement costs were as high as $30 million, but final agreement was under $10 million.
- With regulatory overhang removed, there is optimism for continued company growth.
- Collins St Asset Management believes RFG’s share price will be driven by fundamentals rather than peripheral issues.
- Despite uncertainty regarding future progress, there is still a belief in profit potential even at current levels of 9c.
Collins St Asset Management
31 Mar 2021
$2.92
- Collins St Asset Management views RFG as a franchise business owning brands like Gloria Jean’s, Brumby’s, Donut King, and Michel’s Patisserie.
- RFG faced multiple challenges leading to a significant drop in share price, from $1 to as low as 2.6c during the Covid crash.
- The decline was exacerbated by previous management's mistreatment of franchisees, prompting intervention from the ACCC.
- Collins St Asset Management believes the market is overestimating the potential costs of ACCC action.
- There is confidence in the strength of a post-Covid recovery for RFG’s brands.
- At 6.5c per share, Collins St Asset Management perceived RFG as a bargain and acquired over 5% of the company.
- If RFG meets consensus earnings expectations of 1c per share next year and reinstates dividends within two years, the company is considered undervalued.
- Collins St Asset Management remains optimistic about the eventual market realization of RFG's true value, which they believe is over twice their purchase price.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.