Shareholders are being offered a second bite at the Retail Food Group Limited (ASX: RFG) apple, after the company retreated as low as $4.65 two weeks ago.
While yesterday's announcement of record profits understandably saw shares lift 10%, the company still appears to be changing hands for a reasonable price. Even better was the outlook for further profit growth of 20% in 2016 and the prospect of more businesses being added to the RFG stable.
Here are the highlights from yesterday's announcement:
- Revenue up 63.4% to $210.4m
- Statutory Net Profit After Tax (NPAT) down 7.2% to $34.2m
- Underlying* NPAT up 49.3% to $55.1m
- Dividends per share up 5.7% to 23.25 cents per share (yield of 4.2% at today's prices)
- $17m cash, $206m debt
- Gearing (net debt divided by debt + equity) of 33.1%, interest cover of 11 times
- Completed acquisition of Cafe2u, Di Bella Coffee, Gloria Jeans
- Outlook for 2016 of 20% underlying NPAT growth, +250 new outlets including 130 internationally, potential for future acquisitions
So What?
Despite the impact of Acquisition, Integration and Restructuring costs of $29.4m – which were the reason behind the fall in Statutory NPAT – Retail Food Group handed in a solid performance for the year.
The acquisition of Gloria Jeans, in particular, propelled RFG onto the world stage, and the company is planning to rapidly increase its international exposure with 130 new outlets overseas. This reflects a significant increase on 2015's figure of 2,450 total outlets.
Depending on the success of this venture, Retail Food Group could increasingly become about international earnings as it has a variety of brand systems it can introduce into foreign markets. Management is also taking a crack at the 'Holy Grail' of China, with a joint venture established to bring the Gloria Jeans franchise to the Chinese market.
Whether success will materialise is anybody's guess, but by selling such a universal commodity – coffee – Retail Food Group would appear to have a reasonable chance at achieving it.
Now What?
As management reminded investors, Retail Food Group has been a winner since its inception, with its Earnings Per Share growing at an average of 17.1% every year since listing in 2007. With the scale-up of its coffee business, the company should be able to achieve some real advantages in terms of scale and efficiency into 2016 and beyond.
Indeed, Retail Food Group reminds me of Domino's Pizza Enterprises Ltd. (ASX: DMP), another strong franchise that's gone on to be a cracking success internationally. With scale on its side and a solid foundation from which to branch out, Retail Food Group is in a strong position moving forwards.
Investors will want to watch that management does not get too aggressive with acquisitions and that debt and the number of shares on issue remain under control. However, based on its latest results, I believe Retail Food Group looks like an attractive buy at today's prices.
