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Why the Retail Food Group share price rocketed 24% higher today

One of the best performers on the Australian share market on Monday has been the Retail Food Group Limited (ASX: RFG) share price.

In late morning trade the embattled food and beverage company’s shares were up a massive 24% to 36.5 cents before fading slightly.

Why is the Retail Food Group share price rocketing higher?

The catalyst for today’s gain appears to be a report in the Australian Financial Review claiming that equity investor PAG Asia Capital is casting its eyes over its Crust Gourmet Pizzas business.

According to the report, PAG Asia Capital is believed to be one of the final parties left in an auction for Australia’s third largest pizza chain, with sources telling the news outlet that it has edged ahead of Pizza Hut and is in pole position to take the asset.

This wouldn’t be the first Australian food business in PAG Asia Capital’s portfolio, it already owns The Cheesecake Shop.

A price of $100 million has been touted in the report, which would be a decent return on a business bought for $41 million in 2012.

It would also allow the company to pay down a good portion of its debt. At the last count the company owed approximately $259 million to banks.

However, this morning the company has responded to the media speculation. And while it confirmed that discussions are ongoing, it advised that the sale price mentioned above exceeds management’s expectations for the asset.

It will keep the market informed of any sale of assets or other steps taken to reduce its debt in due course.

What now?

I think this potential asset sale would be a step in the right direction for the struggling company, but it doesn’t make it investment grade for me just yet.

I would suggest investors stay clear of the company for now and focus on other options in the quick service restaurant market such as Collins Foods Ltd (ASX: CKF) or Domino’s Pizza Enterprises Ltd (ASX: DMP).

Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods Limited and Domino's Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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