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Added 7 months ago

Hi @Strawman

Heard your thoughts yesterday on RFG on the MF Podcast, and wondering if it might make a good meeting to get CEO &/or CFO on for a chat? I could assist with an intro if you needed? Never know they might change your mind :-)...

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Valuation of $0.130
Added 12 months ago

Updating the valuation with the new information in today's announcements.

I'm assuming they don't have any more legal costs.

This is a valuation based on current profit, excluding any growth (which looks like it might be happening, but I don't want to assume it).

  • 2.493 billion shares on issue after raising $27.4M at 8c.
  • New $20M loan facility at 7.5% interest, giving $1.5M in repayments.
  • Post-refinancing profit for FY23 of $26.5M after adding back ACCC costs and old financing costs, then subtracting interest repayments on new loan.
  • Gives profit of 1.06c/share
  • Results in 16c/share with P/E of 15.
  • Reduced by about 20% given the decent uncertainty in this business.
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##Capital Raise
Added 12 months ago

Details of the capital raise have been announced to the market. I was initially annoyed with myself for not selling out of RFG last week when contemplating it. However, along with the capital raise was a much bigger debt facility provided by Soul Pats (SOL). This has got me interested, such a long-term stalwart of the ASX is backing RFG.

I'd be very interested in what the community makes of the specifics of the debt facility from SOL.

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#Trading Halt
Added 12 months ago

Well we won't have long to wait to find out about what the plan is for RFGs debt --- the trading halt today is for them to make an announcement about "material capital initiatives".

Given that it's a plural, my guess is they've refinanced most/all of the debt and they're going to do a cap raise (say at about 7.5c). Just a guess, though.

(Disc: held).

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#1H23 accounts
Added 12 months ago

I'm no expert at reading financial reports, and so I'm happy to be corrected on my interpretations here, but from what I understand:

  • Revenue increased to $63M from $54.7M in 1H22.
  • Increased same store sales especially in Donut King, Michel's Patisserie and Gloria Jeans.
  • A loss of $1,092,000 for 1H23, compared to profit of $5,076,000 in 1H22, but this includes about $8M for the ACCC settlement from last year.
  • A negative cash flow of about $5.2M, which is a lot worse than their 1H22 result of negative $2.7M.
  • If I'm reading their accounts correctly then their borrowings have decreased to $32M from $37M ($9.7M current + $27.2M non-current), which seems to match the $5M in repayments that they made. But $32M still seems like a lot of debt when they only have $24M in cash, although I don't really know how similar companies compare. Also, I don't know exactly where to find the interest payments that they need to service the debt, but I assume it's in "Finance costs" which is $2.1M, which again seems like a pretty big amount given their profit (excluding the ACCC settlement) is somewhere in the $5M-$10M range. Lastly, the $32M debt is due in September this year, and so they say they are looking at refinancing, asset sales or a capital raise (!).
  • A capital raise at these share prices: assume $32M at 10c/share is 320M shares. Sounds like a lot, but not as dilutive as it may appear given that they have 2.1B (yes billion!) shares. So about a %15 dilution.

Having lost about 85% of my investment I sold out between 50c and $1 when it fell from grace a few years ago, but I couldn't help but look around at how popular Donut King and Gloria Jeans are at our local Westfield (I admit to buying more cinnamon donuts there than I should). So I bought a small "I can't believe Donut King is going to disappear" holding when the ship seemed to have steadied a bit. Recently the donut prices have definitely gone up but it doesn't seem to have slowed the customer count in our food court.

There's still a Michel Patisserie class action case that could go against them, although according to their report on the situation, it seems that things are going their way. They also mention the threat of a shareholder class action from 2018 that hasn't materialised yet, so that could also be a problem. But it's been almost 5 years since the first announcement of it by the law firm, so maybe it's not going to happen. (I'm no lawyer, and perhaps this is just how long these things take.)

So my takeaway (like a hot cinnamon donut): things may have bottomed out with the settlement of the ACCC proceedings, and while the financial position is not good, it may not be catastrophic. Although a capital raise is a very real possibility. I'll keep hanging on until at least the full year announcement, but I'm looking to see that same store sales and revenue continues to increase. (I'll have to buy a few more donuts to help.)

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#Bear Case
Last edited 2 years ago

29-Apr-2022: While the ASX200 fell 38 points over this past week, it did end the week on a positive note with a 78 point gain to 7435 (+1.1%). A positive lead from the US coupled with end-of-month book squaring and window dressing helped. There were also further rumours that Chinese stimulus is coming, which fed into the positivity. All sectors here were in the green today:


Source: EOD newsletter from MarcusToday

However, not all companies were in positive territory. One company I keep circling back to every so often is Retail Food Group (RFG). RFG closed flat today but during the day they tagged 6.5 cps ($0.065) again, as they did back in February. 6.5 cps is their 12-month low. I'm not a technical trader and I don't claim to be a "chartist", but the following chart analysis from Commsec on the RFG chart has me somewhat baffled:


I'm talking about that rubbish in the bottom right there directly below the share price and volume charts. They're in a "strong near-term rally" are they? OK?!?

I've said plenty on RFG before. Horrible company. Treated their franchisees very poorly. Always put short-term corporate profits before sustainable business development and doing the right thing by their shareholders, franchisees and other stakeholders. The only people that were truly looked after were their own management. Their MO was to roll up other franchise companies that had been built up by others, then strip out any cash, reduce costs, make a bundle, don't invest back into these businesses any more than they absolutely have to, rinse and repeat. Little wonder it all came crashing down around them after their business practices were exposed in the media.

Plenty of people still claimed there was a viable business in there that had been ridiculously oversold, but they just keep going lower. Here's their ten-year chart:


Not too much value there since 2016, eh! Notice the massive volume increase in 2020/2021. There was actually plenty of share price volatility during that period, however if you look at it in the context of their $4 to $8 trading range in the 2014 to 2017 period, it's pretty insignificant. Here is that 2020/2021 period when you zoom in on it:


Sources: Commsec + Invesco1.pdf + Invesco2.pdf + ASX (Announcements (

Here's RFG's financial metrics, according to Commsec:


Remember you can click on the image to make it larger and easier to read, then click again to return to this post.

Despite some people saying that they no longer have a debt problem, their last report showed gearing at 66.8% according to Commsec. They have returned to high single digit ROE (9.5% at last report and 8% ROC) but their NTA per share is apparently negative two cents and their total shareholder return (TSR) has been negative for the past 5 years in a row: -10.8% in FY17, -88.1% in FY18, -75.9% in FY19, -46.1% in FY20 and -4.2% in FY21. They have underperformed the market in terms of total return by -25.1%, -100.7%, -87%, -38.9% and -34.5% respectively in those 5 financial years, as shown above ("Total Return (%) +/- Market (%)").

This is most definitely NOT a company where you can look at past performance, such as their 2015 to 2017 period, and look forward to them returning to that level of form. That ain't happening. They've sold off so many assets and restructured the business. They are not the same company they were then and they never will be. Have a look at those sales, cash flow and earnings numbers then versus now (above). They are but a shadow of what they once were. And that's being generous.

They obviously haven't paid a dividend since 2017 and are unlikely to start paying dividends any time soon, certainly not with the debt that they've got, so any positive return you get has to come from share price appreciation, and they just made a year low again on a positive day for the market.

If there is a genuine bull case for RFG I'd like to hear it. My own thoughts are that with so many WONDERFUL, HIGH QUALITY companies out there that we can invest in, WHY oh WHY do people look to "invest" in rubbish like RFG?

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#Class Actions
Last edited 2 years ago

20-Oct-2021:  Michels Patisserie Class Action





The first three refer to a recent class action on behalf of Michels Patisserie franchisees and centres around RFG's switch from fresh to frozen food which many franchisees believed ruined the business, although there are other allegations involved also.

The last link is to the Phi Finney McDonald site which is part of their preparation for a class action against RFG on behalf of investors who acquired RFG securities (shares) between 18 April 2017 and 28 February 2018 (inclusive) (Claim Period).

Omni Bridgeway has agreed to fund the proposed class action. For more information and to sign up to obtain funding, please contact Omni Bridgeway at

Some further info from that site:


RFG operates franchise networks in Australia and 58 international markets. These include Donut King, Brumby’s Bakeries, Michel’s Patisserie, Gloria Jean’s Coffee, Crust Gourmet Pizza, Pizza Capers Gourmet Kitchen, The Coffee Guy and Café2U. RFG’s Domestic Franchise networks accounted for 49% of Group earnings before interest, tax, depreciation and amortisation (EBITDA) in FY16 and 43% in FY17. RFG enters domestic franchise agreements with its franchisees and, in so doing, generates revenue through royalties on sales, equipment/brand upgrades, store renewal and various other upfront and ongoing fees (the Franchise Model). These fees and royalties are payable to RFG regardless of the franchise’s profitability. A series of Fairfax Media articles and RFG announcements from December 2017 to February 2018 revealed that RFG’s franchise model was under stress, that there had been serious structural deterioration in the financial performance of several domestic franchise networks, and that the value split between franchisee and franchisor required a fundamental rebalancing. From 7 to 18 December 2017, various Fairfax media reports and RFG announcements disclosed to the market that:

  • there was significant financial stress within several, if not all, of the RFG franchise networks; and
  • such was the severity of the stress within the franchise networks that in June 2017, the Board had commissioned Deloitte Touche Tohmatsu to conduct a Business-Wide Review of the sustainability of the company’s franchise model and franchise network operations.

During the trading period 11 to 18 December 2017, RFG’s share price fell $1.75 (approximately 40%). On 19 December 2017, RFG disclosed to the market that its 2018 half year (1H18) net profit after tax (NPAT) would be materially lower than the prior corresponding period. In response, RFG’s share price fell a further $0.67 (approximately 25%). On 9 January 2018, RFG announced that 1H18 statutory NPAT would be less than the $22m previously forecasted on 19 December 2017. Following the announcement, the share price fell $0.15 (approximately 6%). On 2 March 2018, in its 2018 half year results, RFG disclosed a significant deterioration in the performance of its domestic franchise division, substantial asset impairments, and a proposal for 160-200 outlet closures by 2019 to address further financial deterioration for the Company. RFG was reinstated to quotation on 5 March 2018. The market reaction was immediate and visceral. By the close of trade, RFG’s share price had fallen a further $0.75 (approximately 36.5%).

Proposed Class Action

The proposed class action will allege that:

  • from at least April 2017, RFG failed to disclose to the market the material financial risks associated with its franchise model and deteriorating franchise networks, and misled investors regarding the Company’s financial position and performance;
  • from June 2017, RFG failed to disclose that it had appointed Deloitte Touche Tohmatsu to review the sustainability of its franchise model; and
  • RFG’s August 2017 profit guidance for the 2018 financial year lacked reasonable grounds.

Class Action Registration

All current and former shareholders who acquired an interest in RFG securities during the period from 18 April 2017 to 28 February 2018 (inclusive) are invited to sign up to the proposed class action. Eligible investors may obtain an information pack by visiting

Contact Us

If you would like to find out more from Phi Finney McDonald about the proposed class action, or have any queries, please contact us at

--- end of excerpt (from website - link above) ---

Disclosure:  I did not hold RFG shares, so I will not be signing up for the class action.

Further Reading:

The following picture is from that SMH article (titled: 'Greedy and unethical': Franchisees welcome ACCC action on RFG, link to the full article is directly above, i.e. last link) from 15th December (2020) about the ACCC action taken against RFG that has clearly provided more fuel/impetus for the current class action on behalf of former Michels Patisserie franchisees.

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#RFG Debt
Added 3 years ago

13-Sep-2020:  In response to @Anni8's straw on RFG Debt, you are correct in that it has been some time since I looked at RFG's debt - it was just after the November 2019 capital raise and partial debt-forgiveness.  However, their 28-Aug-20 FY20 Results Presentation says (on page 6) that their net debt was down to $33.1m (from $259.7m at 30-Jun-19), and their market cap is only $142m.  While that is a big improvement, it's still a LOT of debt for such a tiny company (now).  Furthermore, while their balance sheet shows net assets of $176.1m, I note that $238.1m of that was intangibles.  If you remove those intangibles, you're left with net assets of negative $62m, i.e. net liabilities of $62m.  In a wind-up situation, those intangibles, which are mostly brand value estimates as I understand it, would be written down considerably.  

In their Appendix 4E and Full Year Statutory Accounts, RFG said (on page 1) that their "Net Tangible Assets/(Liabilities) per security" at 30-Jun-20 was (2.9) cents, i.e. negative 2.9 cents per share.

I've had a look at note 25 of their accounts, and it does indeed state that their net debt was down to $20.8m at 30-Jun-20, which is clearly a different number to the $33.1m net debt figure they provided in their presentation, and it looks like the difference is because (according to note 4 on page 6 of their results presentation) their "Net Debt is calculated in accordance with Senior Debt Facility Agreement definition, including maximum $25 million cash offset."

You've said:

"Given the sale of Dairy Country for $19.2 million, it is probable that net debt will now be reduced to circa $1-2 million."

"I think you will agree that this level of debt is no longer life threatening for RFG and given the new direction and leadership under Peter George, I suggest we can reasonably expect survival and a much improved performance in the coming years."

Taking the second point first, I do have to agree that Peter George appears to have done a very good job of reducing RFG's debt VERY significantly, albeit mostly due to debt forgiveness (write-offs by their lenders).  However, credit where credit is due.  They are certainly in a MUCH better position now than they were 12 months ago.

Furthermore, I think my pronouncement of the death of RFG may well have been a tad premature, and you are right - they do now look to have a reasonable chance of survival, if the sale of Dairy Country for $19.2m proceeds as planned.

I do however note that while the BSA (business sale agreement) provides for a sale price of $19.23m, it is subject to net working capital adjustments, and also remains subject to a number of conditions, including FIRB approval.  Assuming it goes through, and assuming that RFG's net debt position has not deteriorated since June 30 (which is a big assumption considering the COVID situation, particularly in Victoria), then it has the potential to wipe out the majority of RFG's net debt.  However their actual debt at June 30 was $54.7m - excluding deferred borrowing costs, derivatives and financial guarantee contracts, as described in Note 19 - and their cash and bank balances was $33.9m, and in the current situation I would doubt that you could apply that cash to pay off the debt without crashing the company completely.  In other words, I expect that much of that cash would be needed to keep the company afloat at this difficult time.

To summarise - you're right, they're in better shape than I thought they were.  Agreed.  However, they still have a negative NTA (or did, at June 30), and their balance sheet is still bloated with intangibles which I believe will be subject to significant write-downs in future years, should they last that long.  And - every significant move they make, such as the Dairy Country sale, has to be approved by their lenders, as they stated in that announcement. 

I still don't see PE circling, and I believe that's because RFG is light on real tangible assets, so they still don't look too appetising to Private Equity, as there isn't much left to sell off, versus the remaining debt.  

Apart from Asset Sales (such as Dairy Country), I think the odds are that RFG's net debt position will get worse in H1 of FY21, mostly due to COVID, but also because their business and their revenue is shrinking with every asset sale, and if you keep selling assets, eventually there's nothing left.  Also, many of their brands have been damaged, some of them perhaps irreparably.  Just my opinion of course.

However, thanks for your straw Anni8, you are right, I wasn't aware of just how much RFG have managed to improve their net debt situation.  They have certainly achieved a lot in the past year, and their chances of surviving have certainly improved.

I still wouldn't be buying RFG shares though.

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#Further COVID-19 Update
Added 4 years ago

02-April-2020:  Further COVID-19 Update

On March 25th, RFG Updated the market on the impacts of COVID-19 on their business.  Two days later they released a "Further COVID-19 Update" (on the 27th).  Five days later (yesterday) they've released another "Further COVID-19 Update" (link above).  This one is actually quite good, in that they have spent a fair bit of it explaining how they are attempting to assist their franchisees get through this.  They need to, or the franchisees will just walk away, leaving RFG with a debt load that would finish them.  RFG are also calling on the government to do more in relation to landlords refusing to reduce or waive rent.  Apparently some landlords have agreed to defer rent, which, as RFG correctly points out, would just defer the full financial impact of this for those franchisees (send them broke later instead of earlier).  As RFG says, that approach is unacceptable in these circumstances and is not in the spirit of what the government has been trying to achieve in relation to keeping such businesses viable and thereby providing tennants for those landlords when things normalise.  It's easy to be cynical with a company like RFG who have treated their franchisees so badly for so long, but they do finally appear to be trying to do the right thing.  Whether it's just because their own survival depends on it or not, it's still good to see.

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