Originally posted by daicosisgod
Thanks Jack,
Probably the biggest punt (high risk/high reward) move I have made.
In May'18 Invesco lodged two Substantial Shareholder Notices buying an extra 4million shares and taking holdings to 12.3% Even though this fund manager is playing with other people's money it does need to take into account reputation risk so why are they buying shares I asked myself. So I took the increased holding as a positive sign. Note: Invesco have subsequently bought even more RFG stock and now sit at 14.8%. I am assuming Invesco has its own exit strategy that will lift the SP though to what extent I don't know.
I have been involved in franchise chains for many years and everything Richard Hinson is doing is right out of the franchise resurrection playbook. If Hinson pulls this off I will personally deliver a bottle Grange to his door.
The key issue is the banks and the debt. There are still plenty of levers in the business to generate some debt relief. Perhaps sell some of the franchise systems, sell food service, sell the coffee business. Tendering the whole supply chain was a smart move and should generate savings for the franchisees.
The business is still producing operating cashflow. What it really needs is some time.
The government inquiry into franchising was horrible and many of the submissions were made after I doubled down my investment.
I have scanned every submission, all 217. Of these I can attribute 28 to RFG a shocking hit rate. Of these Michel's Patisserie is the biggest offender with 12, 6 for Brumby's, 4 Gloria Jeans, 3 Donut King and 3 for RFG in general. Nothing for Crust Gourmet Pizza, Nothing for the coffee franchises and Food Service is not relevant. Some of the stories were tragic but still the RFG business survives. Like a cockroach in a nuclear winter.
Next to consider were the two class actions. The first by the franchisees is not proceeding at this stage, with a specialist litigation funder reviewing and declining to proceed - not surprised as every franchisee circumstance is different. The second class action by shareholders has not completed its litigation funder review so watch this space.
I'm not sure it can get any worse. The one saving grace is that I think the banks would hate the publicity of putting RFG under. Think of the headlines big Four Bank default's RFG and crushes the little guys and employees. Can you imagine it.
What a mess. But I still think there is a chance even though the market is currently pricing in failure.
Because the franchisees have their whole financial future on the line, they will fight like tigers to survive. I have seen franchisees before pull off miracles when the whole system gets into trouble. It generally needs a new CEO who knows what he/she is doing and it needs a little bit of help from the banks.
Other than the gutless Alfords and the former Chairman none of the other directors have resigned from the board. Of course they are in a difficult situation but I appreciate that they are stilling duking it out.
So after all of that I am still in. Not trying to be a hero, god forbid and not even trying to prove that I am right. I just looked at the risks and thought the upside is huge if???????????
Whatever if is.
GLTAH
..... a well thought out reasoned response - but I fear you will be burnt.
A substantial shareholder increasing their stake in such circumstances is to protect their holdings/money not yours. While the new guy might be capable you are correct in identifying the banks as the main problem - as did the directors and the auditors in the last report.
Until the next report is made it is hard to see whether they are generating enough cash - I don't think so. They do need to sell something but it is as a forced seller - never a good thing. Yes they need time but I can't see the banks giving it to them. I think you have misread how hard the banks can be if they have to. Shareholders will be burnt - not the franchisees - although they will be caught in the crossfire.
The government inquiry is still ongoing and only this morning is the news that Alford and Nell have been summonsed to appear - having refused up until now.
I am not sure where the class action is going but it is just another distraction and cost.
What a mess - yes it is indeed. Anyway good luck. I hope you are right.
I prefer the comfort of SGF with it's share price bouncing around but steadily increasing dividend. I also recommended CCL recently which has seen a great short term run. While my accumulation in RHC is still a little in the red I think that over the medium term - 5 years it is going to be a winner. MYX has been a star recently and has a long way to go. Pity about ISD.
Jack
