RFG’s sweet sell of success share rally

SHARES in battered Gold Coast franchisor Retail Food Group have rallied amid speculation the company is negotiating to sell more of its assets.

RFG shares climbed as high as 27.5c, 71.88 per cent higher than a low of 16c last Thursday. It closed at 24c, up 14.28 per cent for the day.

The buying followed speculation this week RFG was moving to sell off its Dairy Country business separately as negotiations continue on the sale of its Donut King, Pizza Capers and Crust brands, which it has valued at $87.34 million after lease liabilities of $45.79 million.

Asia-based private equity group PAG is reported to be negotiating to buy all three.

According to the Australian, insolvency firm KordaMentha was understood to have been hired to assess options for Retail Food Group’s Hudson Pacific bakery business and to examine its balance sheet.

The Dairy Country operation, a high volume cheese distributor, sits within Hudson Pacific, which RFG bought for $88 million – $55 million cash and $33 million in RFG shares – in 2016.

The company reported a $111.1 million net loss for the first six months of the financial year and has had repeated lifelines from its lenders, owed more than $250 million.

Those lenders, NAB and Westpac, are due to test their loan covenants by Saturday and RFG have said this deadline must be extended to ensure the company’s status as a going concern. It has flagged improved earnings for the financial year after undertaking a daunting turnaround under new executive chairman Peter George.

The company shed two chairmen and a CEO in the first six months of FY2019. RFG was savaged by the joint parliamentary inquiry into the franchise sector, which found it had bled franchisees dry with an unjust business model which remained in place.

The committee has recommended a wide-ranging and significant overhaul of the sector to address systematic abuses of the system that have seen franchisees lose their homes, assets and livelihoods.

Past and present management from RFG came in for the most scathing criticism, with the committee recommending a three-pronged investigation into the company and its current and former executives to look for insider trading, short selling, market disclosure and tax avoidance.

RFG declined to comment specifically on the speculation.

“As previously stated, RFG is continuing to look at a range of debt reduction options including the potential sale of assets,” the company said in an email. “As soon as RFG has any news to report on the potential sale of assets or updates to covenant testing timeframes we will advise the market in line with our obligations.”