ASX Code: $4.55
Security price: RFG
Industry: Retail
Forecast distribution: 27 cents per share fully franked
Retail Food Group is the company behind franchise successes Donut King, Brumby’s Bakery and Michel’s Patisserie. It also owns coffee brands Di Bella and Cafe Palazzo.
RFG’s stock hit $8 earlier this year but despite strong earnings growth, the shares have since fallen sharply to $4.33 with investors fretting about performance and a slowing economy.
The share-price slump has given income-focused investors a good opportunity to lock in a strong dividend of 5.9 per cent in a company with strong brands and solid growth potential.
RFG is Australia’s largest multi-food franchise operator but it’s also been expanding its international operations and wholesale coffee business in a bid to diversify away from the slowing Australian economy.
Last year RFG was particularly active. It bought mobile coffee operator cafe2U and Gloria Jeans Coffee Group brands. It also added coffee roaster Di Bella Coffee. Those acquisitions, and new openings of its existing brand stores, took its global network to almost 2500 outlets.
But it also rattled the market with a June announcement that its 2015 profit result would be hit by $18.5 million in one-off costs and charges. It also outlined a management restructure with the managing director role held by Tony Alford to be split from CEO functions.
Yet RFG’s full-year results in August showed it was still performing well. Its underlying earnings per share (which doesn’t include the one-off costs of $18.5m) rose 34 per cent.
The company says it has a positive outlook for 2016 and is confident of achieving underlying net profit after tax growth of around 20 per cent to $66m.
To drive growth, RFG is adding more outlets, making its existing franchise operations more efficient, and it wants to continue to expand internationally.
Despite exposure to a soft local economy, we think the company is well placed to pursue that growth.
RFG announced a final dividend of 11.75 cents per share, which took the total full-year pay out for 2015 to 23.25c per share fully franked. The stock goes ex-dividend on Thursday.
At $4.33, RFG is trading below our forecast valuation of $5.84. So along with growth potential and a solid dividend yield, the stock also offers value for income-focused investors.