I have FY'18 EPS at $0.45 and with a P/E ratio of 14x RFG should trade around $6.30.
But.
The market has lost faith in management for a number of reasons:
1. Firstly Gary Alford (CEO) and brother Tony Alford (COO) retired in early 2017 after around 20 years in the business. Between them they controlled nearly 15% of issued capital but this has now been reduced. Though the substantial shareholder notices were vague and alluded to loss of control of trusts rather than outright selling as the reason for the reduced holding. Not good for market confidence. Shorter's are still playing with RFG.
2. There was a $22m write-off of uncollected franchise co-operative advertising debts (mainly Michel's Patisserie) in the FY'17 results. The clowns at executive level and the Board tried to cover this up as an abnormal. If you understand franchise systems this is not abnormal. What was abnormal was the size and sheer incompetence of management allowing this to happen in the first place.
3. There has been great conjecture about the franchising business model in Australia. Recent shocking publicity for 7-Eleven wages underpayment, Domino's Pizza wages under payment have placed questions over RFG as well. Some say that with 10% of RFG franchises up for sale that is a bad sign. It's not!!!!!!! Having franchisees buy and sell is completely normal and 10% is not a high figure by any stretch of imagination. But where is the management defence????
4. The cock up with the DRP shortfall was a cashflow disaster. With dissatisfied shareholders reluctant to reinvest given where the SP was, the RFG management bozo's screwed up the estimate of cash coming in from dividend reinvestment. And surprise, surprise the shortfall had to be a underwritten placement to insto's and sophisticated investors at a 17c per share discount @ $4.40 This took another 17cents off the SP
Given the 4 issues above, I would reckon a 30% discount factor is warranted so $6.30 becomes $4.41
And please do not get me started on the proposed LTI rules for the Managing Director. The fact he has trashed the SP over the last 8 months means that he will achieve his full LTI for just doing his basic job and receiving a LTI bonus of over $500k on top of his salary.
I am angry because all of this pain has been self inflicted by the Board and management team.
A sh1t hot management team would have RFG rockin' and rolling at a SP of $8.00
RFG Price at posting:
$4.55 Sentiment: None Disclosure: Held
