While pizza, coffee, cake and donuts may sound like heaven to many, it's actually a place on earth for Retail Food Group Limited (ASX: RFG) shareholders.
Australia's largest multi-brand franchisor is the business behind Donut King, Pizza Capers, Michel's Patisserie, Di Bella, Gloria Jean's coffee and more. The stock has climbed 51% over the past year as shareholders benefit from the success of its acquisitive growth strategy backed up by decent organic growth.
Today the group updated the market that it is still tracking to post a full year profit of around $55 million this financial year, with a three-year strategic growth plan in place to keep delivering profit growth.
The plan is targeting further acquisitive expansion and the group now has around 2,450 operating outlets under its wings, while by financial year (FY) 2018 the group is targeting around 3,500 stores under its control.
Much of the future growth is expected to come internationally, with a target for international earnings to hit about 25% of the group's total by FY 2018. The group has also entered into a joint venture in China that will see the joint venture partner establish a minimum of 25 Gloria Jean's coffee outlets over the next 12 months.
RFG is also on the record as stating that its other brand systems are strong candidates for entry into vast Asian markets.
The company also expects to derive an additional $16 million in EBITDA over the next three years due to additional synergy, consolidation and cost saving benefits across its business.
Same store sales growth and average transaction value growth across its brands have also been reasonable this financial year despite the much reported softening of consumer confidence. The coffee retail and Gloria Jean's brands continuing to perform especially well.
However, the acquisitive growth strategy is what has really driven the stock in recent times and today's update that it remains on track in terms of returns on invested capital and integration of acquired businesses seems positive.
The group is forecasting earnings per share of 35.5 cents this financial year which places it on a forward earnings multiple of 18x when selling for $6.40. However, with just one month to go until financial year end this looks decent value when you consider the growth potential and expectation for a yield around 3.6% at current prices.
Retail Food Group does have competition from the likes of Domino's Pizza Enterprises Ltd. (ASX: DMP) and KFC merchants Collins Foods Limited (ASX: CKF), although the real key to big returns is finding the fast-growing businesses of tomorrow not today.
And I'm not kidding when I say one of the two small-cap stocks identified in the below report has some eye-watering potential thanks to its growth into a huge US market and market-leading position… Best of all it's still trading on a reasonable valuation!
