Despite trading conditions Retail Food Group Ltd (ASX: RFG) has described as "challenging", at least one broker says there are serious gains to be made in buying the company's shares.
Retail Food Group earlier this week put out a statement to the ASX updating the market on its debt refinancing and its expected first-half results.
The company said it had refinanced its debt with a new $41.2 million facility with Washington H. Soul Pattinson & Company Limited (ASX: SOL), with the new facility providing another $7.5 million of headroom to finance its growth plans. The new debt was at an interest rate of 9%.
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Difficult start to the year
The company also said that it expected the first half underlying EBITDA to come in at $9 to $10 million, down from $16 million for the first half in the previous year.
This was due to challenging trading conditions during the second quarter, a lack of certain one-offs that would not be repeated during this period, and a lower-than-anticipated contribution from newer Beefy's outlets.
The company added:
Earnings were also impacted by franchisee support initiatives relating to the above, including maintenance of wholesale coffee prices despite higher raw material costs, particularly green coffee beans.
Retail Food Group also explored a potential sale of the Brumby's Bakery business during the half, but decided to retain the business.
Executive Chairman Peter George said:
While Brumby's attracted considerable interest from multiple parties, we were ultimately not convinced that the options available would be in the best interests of shareholders, franchisees, or team members at this time. Brumby's remains profitable and is an important contributor to RFG's performance, with this decision providing certainty for all brand stakeholders.
In the earnings guidance, the company said cost initiatives were under, which were expected to deliver $1.2 to $1.8 million in savings this financial year and increase to $5 to $7 million during FY27.
The company added:
As a result of the above, RFG expects earnings to improve in 2H26 vs 1H26 and is guiding to FY26 Underlying EBITDA of $20.0-24.0m.
Analysts see plenty of upside
The Shaw team, in a research note to clients, said the company's valuation going forward was likely to be driven by how well it executes its growth tactics, both organically and via new store openings.
They added:
RFG has identified initiatives that can grow the business organically such as, implementation of new systems, conversion of legacy branded outlets into focus branded outlets, engagement of multi-site operators and expansion of company-owned stores. RFG management has indicated that it can leverage its systems, knowledge, network and overheads to bolt-on acquisition of branded food/beverage outlets. Value-accretive acquisitions could be a key valuation driver for RFG.
Shaw and Partners has a price target of $2 on the shares compared with $1.28 currently. If achieved, this would deliver a 57% return to shareholders.
Retail Food Group was valued at $80.2 million at the close of trade on Wednesday.
