Retail Food Group Limited

 
Weak trading update: Retail Food Group Limited’s (ASX: RFG) stock fell over 25.3% on December 19, 2017, after the company gave the trading update on the expected impact of continuous challenging domestic retail conditions and other factors on its 1H18 statutory business performance. RFG’s domestic franchise revenues are flagged to track lower than expectations due to the retailers with shopping centre exposures. The recent negative media coverage about franchising, retail and RFG in particular have also led to a noticeable fall in momentum in new and renewing franchise sales.
 
Therefore, the associated revenues are now projected to be below prior expectations, and future franchise trading revenues are also expected to be impacted. RFG’s Crust and Donut King have continued to perform to expectation, while Michel’s Patisserie, Brumby’s and Gloria Jean’s are trading below expectations. Moreover, RFG is negotiating with its lenders to rollover its three-year loan facilities of $150 million, maturing in December 2018, into longer dated maturities and will advise the market when the process gets finalised.
 
Given the scenario, RFG expects 1H18 statutory NPAT to be c.$22.0m, below the 1H17 NPAT of $33.5m. Amid the prevailing negative sentiments, RFG stock has fallen 40.32% in three months as on December 18, 2017. While the media hype and recent trading update is not encouraging at all, we believe the long-term potential might get some better picture going into the next year. We have a wait and watch approach on the stock at the current price of $1.98

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