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Why the Retail Food Group (ASX:RFG) share price is up 4%

Dividends

The Retail Food Group Limited (ASX: RFG) share price has jumped 4.69% this morning after the company announced it was selling its Dairy Country business.

Retail Food Group’s share price is trading at 6.7 cents at the time of writing. In comparison, the broader All Ordinaries Index (ASX: XAO) is down 0.9% to 6,033 points.

Retail Food Group is a global food and beverage company that operates in the bakery/cafe division, coffee retail, and manufacturing and distribution operations.

Since it was established in 1989, Retail Food Group has grown to become Australia’s largest multi-brand retail food and beverage franchise owner, servicing more than 1,150 locations.

Dairy Country sale

The company announced it was selling the business and assets of its subsidiary, Dairy Country, to Fonterra Brands for $19.23 million. This is expected to benefit Retail Food Group in a number of ways.

Net proceeds from the sale will be used to extinguish Dairy Country’s working capital facility, and to make a further repayment of Retail Food Group’s debt obligations. This will free up the company’s cash flow and allow it to respond to the evolving retail landscape affected by COVID-19.

Settlement is expected by October 2020, pending net working capital adjustments and conditions such as a foreign investment review board approval.

What did management say?

Executive chair Peter George was optimistic about the sale re-aligning the group’s core values and strategic interests. He said:

Dairy Country has represented a reliable past contributor to group earnings, however, is no longer considered an appropriate fit with RFG’s strategic intent to focus its resources on the company’s core retail food franchising and coffee businesses.

Mr George added the sale would give the company more flexibility within its balance sheet, saying:

The transaction facilitates the company’s exit from foodservice and manufacturing pursuits, providing the group with a less complex business model that enables RFG to dedicate its resources towards driving positive outcomes for its franchisee community, and building value for its wholesale coffee business following its FY20 restructure.

About the Retail Food Group share price

The Retail Food Group share price has regained 146% since its March low of 2.6 cents. However, since the beginning of the calendar year, the Retail Food Group share price is trading 35% lower.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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