The shares have fallen 90 per cent, but is it time to buy Retail Food Group?
Food & Agriculture
Food & Agriculture
After falling around 90 per cent from their peak three years ago, the worst may still not be over for Retail Food Group, which operates a host of franchise food retailing outlets from Gloria Jeans coffee shops to Michel Patisserie shops.
Today Retail Food (ASX:RFG) flagged a $98.6 million loss for the year to June, due to write-offs which will more than wipe out any earnings.
And it has indicated the loss could be higher, depending on any year-end adjustments.
And then there is the threat of its financial backers pulling the rug out from underneath it if it can’t turn itself around sooner rather than later.
“Trading performance continues be impacted by a combination of … persistent difficult retail market conditions, the cumulative impact of planned domestic outlet closures, and ongoing negative sentiment regarding both retail franchising and [Retail Food Group] in particular,” it advised investors earlier today.
As a result, it “continues to maintain dialogue with its bankers and their advisors”, it noted.
Retail Food Group was a market darling until a few years ago, with its shares peaking at $7.85 in early 2013, as it undertook a string of “strategic acquisitions”.
The shares are now trading at about 75c.
The company claimed to have transformed into “a franchising and coffee leader in Australia”, during which time it “established a platform for low risk sustainable growth internationally”.
Those days are long gone, as it struggles to put its operations onto a sustainable footing in the wake of media attention on the poor record of some of its franchising operations.
Detailed reviews saw the chief executive replaced by Richard Hinson, who was appointed earlier in the year to review the sprawling group’s business model.
A key part of that has involved not only reshaping parts of the group’s network of stores, but also bringing some operations in store, which has not proven to be easy.
For the full year, the underlying net profit is now seen at $34.5 million, indicating that second half earnings were only around half the $24.7 million earned in the December half. The company had not provided full year guidance previously.
Also pressuring the shares has been the limited institutional investor support, with only a small number of groups such as Invesco retaining large stakes in the company.
In afternoon trading, shares were down 4.5 per cent, losing 3.5c to 74.5c, moving off their earlier all-time low of 72.5c.
The previous low of 74c was touched soon after the company went public in mid-2006.