Retail Food Group Limited (ASX: RFG)

Recently, Retail Food Group, a food and beverage Company released its FY18 earnings guidance and the Group flagged its underlying NPAT to be approximately $34.5 million with a statutory loss of approximately $87.6 million after taking into account the substantial impairment charges that were indicated in December 2017. As per the June quarter rebalance of S&P/ASX indices, RFG has been removed from S&P/ASX 200 Index and All Australian 200 Index, effective from June 18,2018.Further, all kind of termination payments to former Managing Director, Andre Nell, and other additional one-off turnaround expenses have been considered to take out the estimated statutory FY18 NPAT figure. The Group continues its discussions with its bankers and their advisers with respect to Group’s expected FY18 result and forecasted FY19 results. The fall in guidance was a result of difficult retail market conditions, the impact of planned closure of domestic outlets and due to the negative sentiments for retail franchising and RFG in the market. The Group has been specifically hammered for its franchisee business model and has seen a steep fall in the stock price in a span of 6 months (81.98%). We are vigilant of the development and have a ‘Hold’ on the stock.

On the other hand, one Fintech Company, Afterpay Touch Group Ltd (ASX: APT)was added to the S&P/ASX 200 Index replacing RFG and recently announced that it will commence transacting in the United States in a phased approach with a number of significant lifestyle retailers. The size of the US market is substantial and represents a significant opportunity for Afterpay like the U.S. online fashion market alone is US$60 billion as compared with Australian market of US$3.0 billion. Afterpay’s value proposition is clearly resonating. It completed its merger with Touchcorp and it continues to maintain a growth momentum and on date it has more than 1.5 million customers. Its main focus is on Retail Innovation and not only on Finance. It is now one of the largest retail affiliate programmes in Australia. The Group has maintained low default rates relative to peers as the Group assumes all customernon-payment risk and doesn’t allow customers to keep transacting if they can’t make a payment. In last six months, the stock has climbed up by 60.5 per cent and is trading towards its 52-week highest level.
 

AMP Limited (ASX: AMP)

Then we have AMP Limited (ASX: AMP) that has been replaced by Amcor Limited (ASX: AMC) in S&P/ASX 20 Index. AMP was lately found to plunge by 31.2% in last six months with findings of Royal Commission weighing over the stock. On the other hand, John O’Sullivan is set to join its Board as a Non-Executive Director, effective 20 June 2018. Further, Moody’s Investors Service has stuck around with debt ratings on AMP Group companies and AMP Bank Limited, with a single notch downgrade to the insurance financial strength rating (IFSR) of AMP Life Limited owing to Australia’s challenging operating environment for life insurers.The group is still capitalised well though the financial sector challenges hover around AMP. We believe it is better to avoid the stock at this point in time.

 
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