Ann: Chairman's Address to AGM, page-4

Petra Research:

Retail Food Group (RFG) - The dough is rising

RFG’s AGM saw management confirm FY20 earnings guidance, with trading performance for the first four months of FY20 consistent with the internal budget. An update on efforts to reinvigorate the core product offering indicates these changes are gaining traction, and shareholders also approved Executive Chairman & CEO Peter George’s incentive plan. Alongside other recent developments management is well positioned to execute on its turnaround strategy, and we see substantial upside as this plays out. We reiterate our Buy rating and target price of A$0.25.

Sweet November

• The AGM caps a solid month for RFG, with management confirming FY20 EBITDA guidance of A$42.0-46.0m and flagging that new product campaigns are generating annualised incremental network sales of A$11.8m, vs A$9.9m ten weeks earlier.

• Over the past month RFG has: completed a A$170m equity placement; raised an additional $18.8m via an SPP; executed a significant restructure of the company’s debt facilities; agreed to dispose of the loss-marking Hudson Pacific Foodservice business; and approved a highly shareholder-aligned incentive plan for Executive Chairman & CEO Peter George.

Quality business with clear upside

• The issues facing the business over recent years diverted attention from the underlying quality of a number of its brands, and we see significant upside from a re-energizing of these businesses.

• Management’s plan to improve franchise profitability includes a number of efforts currently underway, with the initial upside from improvements to the cost base and top-line gains from marketing campaign initiatives providing comfort around the outlook for this strategy.

Maintain target price and Buy rating

• As the business is right-sized, we see it entering a period of earnings stabilisation and expansion, with EBITDA growth of 6.6% p.a. over the forecast period alongside prudent balance sheet management.

• Based on our estimates, RFG is currently trading at a 60% discount to peers, which we see as very attractive relative to the stable capital structure and earnings growth on offer.

• We have updated our model for the SPP and maintain our conservative earnings forecasts, with our valuation methodology (a combination of DCF and comparable peer multiples) generating a target price of A$0.25.

• We reiterate our Buy recommendation.