Business Improving at RFG, page-185

Comments about the potential for an international roll-out of GJ to drive growth are interesting, however, throughout a lengthy career in equity markets, I witnessed far more unsuccessful attempts by Australian companies to expand offshore, than successes.

I wonder if the current share price strength may be reflecting the market's expectation that:

1. A solid interim result will be released for FY23 next month;
2. Full-year EBITDA guidance of $26m - $29m will be confirmed; and
3. the payment of dividends (ff) will resume, ending a 5-year dividend drought.

Points 1. and 2. may be a bit ho-hum (read: probably discounted by the market), but point 3., may well get the market going in my opinion.

Back of the envelope: say FY23 EBITDA comes in at the lower end of the range ($26m), assume a working capital change similar to last year (bit of a guess!), assume maintenance capex of c. 2.5% of sales ... it is conceivable that FCF of $c.$23m could be generated.

To be conservative and very crude let's knock off say 30% to give say $16m. This still leaves the stock on a solid 8.2% FCF yield at a market cap of $195m and importantly with the potential to increase further as the business continues to improve.

Don't know what you guys think but given the solid state of its balance sheet, the company could conceivably afford to pay c. $10m of this to shareholders as dividends, implying a 5.3% yield or 7.6% grossed up.

Could this potentially add another 30% upside (pick a number) to the stock from its current level within the next few weeks? I don't know, I am just asking.

As for the GJ international roll-out.... a discussion for another day but the bottom line is, management will have to be on its game the manage the execution risk that invariably accompanies managing assets in highly competitive foreign jurisdictions. Do you think it is up to it?

Finally, RFG is a splendid example of where I managed to 'snatch defeat from the jaws of victory'.... having first bought the stock in 2016 at around $4.80, only to see it peak above $7.00 and NOT selling, only to see it bottom out at a few cents. I have since lowered my holding cost significantly by adding to the position with the hope of restoring my capital.

If it works out....a 7-year round trip ...

Disclaimer: This is not financial advice and please do NOT rely on my numbers, seek professional advice based on your specific investment needs if required, and/or do your own research. Good luck!