I first bought RFG at $4.4 in late September as that was a good support level. It held and went up to 4.6 after the AGM. But then the negative news campaign started and the stock plummeted to $3.25 on 11 December. I wasn't worried by it because there had been similar articles written about Bakers Delight, Dominos, Seven Eleven, etc in the past. $3 was a good support level so I added some more at $3.07 , bringing my average down to $3.6.
My investment decisions were based on management's reassurance on 13 December that NPAT would grow at 6% for FY18.
Today RFG announced that first half profit would be $22 million, compared to $33.5 million for 1H17. It's also subject to $5 million sales completed by 31 December, which means 1H18 profit could be as low as $17 million.
This is totally unacceptable and amounts to deceitful conduct by management. I'll join the class action law suit for sure if there's one initiated.
Assuming the 6% NPAT growth is distributed evenly betwen 1H18 and 2H18, 1H18 NPAT should be 33.5*1.06 = 35.5 million. On 13 December 2017, 2 weeks before the end of 1H18, how could the company have no idea that 1H18 profit was not going to meet target? Even adding back the $7 million spent on Deloitte, NPAT would be just $24 million.
Nobody knows what FY18 results could be. Let's assume today's update is 100% honest, best estimate for FY18 NPAT would be around $50 million. Given the current market cap of $360 million, the direction of the SP depends on people's opinion on the company's future.
This is the worst stock I invested in this year. It leaves an otherwise very good year on a very bad note. I've had a few other crushed stocks before. Most of them turn out OK. But it's an awful experience which I try to avoid by capping each investment at 2% of total capital. But still, losing 0.4% on a single stock in a single day brings a lot of stress. Management need to be held accountable and made to pay for misleading investors.
RFG Price at posting:
$1.98 Sentiment: None Disclosure: Held
