Still not convinced
Rhodes Food put out a trading statement indicating that normalised diluted headline earnings per share (HEPS) is expected to be 35% to 40% higher. Now we need to see what the normalised is about when it issues the results later this month. But on the surface this is a good update from a stock I have been negative about since it listed in late 2014 at around 1 000c. My concerns remain, although so far I am being proven very wrong with the stock up at around 2 500c. My issue is that providing prepared foods for retailers and condiments for sit-down and takeaway food outlets is a tricky business. The retailer is always looking for ways to improve margins and one way to do this is to squeeze the supplier, in this case Rhodes. Now, maybe the company’s products are so amazing that it actually has the pricing power, but I am not convinced by that story. A pie is a pie and jam is jam, can that really command pricing power? So far the market is saying yes, but I remain unconvinced about this group’s long-term prospects.