Retail Food Group Limited

RFG Details

Federal Court Proceedings Initiated by ACCC: Retail Food Group Limited (ASX: RFG) is a food and beverage company that owns a multi-brand retail food franchise and distributes high-quality coffee products worldwide. As on 16 December 2020, the company’s market capitalisation stood at ~$180.20 million. Recently, Castle Point Funds Management became a substantial holder in the company with a voting power of 5.19%. Castle Point Funds Management currently holds 110,080,097 ordinary shares of the company. 

On 15 December 2020, the company informed the market that the Australian Competition and Consumer Commission (ACCC) has initiated a Federal Court proceeding against RFG and certain of its related entities.  ACCC alleged that from 2015 to 2019, RFG was engaged in false, misleading and deceptive conduct when it sold or licensed 42 loss-making corporate stores to incoming franchisees. As per ACC, RFG falsely represented that these loss-making stores were viable or profitable. ACCC also alleges that RFG misused its marketing funds to pay for non-marketing expenses in breach of the Franchising Code.  RFG believes that these issues are not significant in scope. Further, RFG has highlighted that ACCC has not pursued several of the broad and serious allegations that were raised during the course of its extensive investigation. Currently, RSG cannot estimate the financial consequences sought by the ACCC and will review the accusations in the proceedings to engage with ACCC as is required. 

A Sneak-Peak into RFG’s Financial Results of FY20: The revenue and other income of the company went down by 24.4% from $349 million in FY19 to $264 million in FY20. The reduction was due to the decrease in revenues of Brand System, and Di Bella Coffee, both impacted by the store closures caused by the COVID-19 pandemic. During the year, the company’s underlying EBITDA declined by 19.3% to $35.5 million. The statutory net loss after tax stood at $4 million for FY20. The company ended FY20 with net debt of $33.1 million, down from $259.7 million in FY19.

Financial Highlights (Source: Company Reports)

Outlook: Looking ahead, the company intends to maintain its focus on top-line growth and establishing new outlets. Further, the company is focused on improving franchisees’ current turnover and implementing operational improvements. Currently, the company is focused on delivering tangible cost-of-goods-sold (COGS) improvements, including significant reductions in wholesale coffee pricing, annualised flour range savings for Brumby’s franchisees, and cost reductions across the QSR Division’s core ingredient range.

Stock Update: On 15 December 2020, the company’s securities were placed in a trading halt pending its release of an announcement regarding a media release issued by ACCC in relation to RFG. However, following RFG’s response related to the matter, the trading halt was lifted on 16 December 2020. The stock of RFG has provided a return of 22.05% in the last three months. The stock is currently inclined towards its 52-weeks high price of $0.110. On the technical analysis front, the stock has a support level of $0.063 and resistance of ~$0.105. Currently, the stock is trading at $0.083, down by 2.353% as on 16 December 2020.

RFG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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