RFG Details
Acquisition of Hudson Pacific Corporation:Retail Food Group Limited (ASX: RFG) has entered into a Share Purchase Agreement (SPA) to acquire the business and operations of Hudson Pacific Corporation at $88 million which will lead to the third party full service food and beverage operations. RFG had already acquired Cafe2U, Di Bella Coffee and Gloria Jean’s Coffees Groups during FY16. Moreover, the SPA is subject to confirmatory due diligence investigations, along with other usual and ordinary conditions. The acquisition is expected to be completed in late September 2016. The FY17 EBITDA contribution (assuming late September 2016 settlement) is expected to be c. $11m.
Strong FY 16 Financial Performance:RFG reported a 20.5% increase in the underlying NPAT to $66.4m in FY 16 over the previous corresponding period. The revenues have grown 30.5% to $274.6m and the earnings per share grew 69% to 37.4 cents per share. Moreover, RFG has added 84 new outlets (new total 2,530) in 11 new territories for a total of 69 territories. RFG has reported a 24% increase in EBITDA to $110.2m and more than 50% of Group EBITDA derived from International and Coffee & Allied Beverage operations. Moreover, RFG is expecting to achieve FY17 underlying NPAT growth of c.20%, inclusive of a c.8% contribution from Hudson Pacific.
FY16 Financial Performance (Source: Company Reports)
Rising Debt concerns:RFG’s gross debt is $209.2 m as on 30
th June 2016 which includes non-current borrowings of 2.5-4.5 years’ maturity and $50 m of non-current borrowings at the fixed interest rate to September 2017.
Debt Structure (Source: Company Reports)
Moreover, RFG stock rose 52.7% in the last six months (as of September 01, 2016). The acquisition driven activity remains a central feature of RFG’s strategic growth platform and consequently the group is facing rising debt as well as interest expense, which could be a challenging factor for the coming period. Further, there are speculations about the group’s Hudson acquisition’s synergies.
We recommend investors to book their profits as we give a “Sell” recommendation on the stock at the current price of $6.83
RFG Daily Chart (Source: Thomson Reuters)
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