Retail Food Group Limit Analysis

Retail Food Group Limited

Retail Food Group Limited (RFG) is an Australian retail food brand managers and franchisors, which was established in 1989. The company listed on the Australian Stock Exchange in 2006 and now owns approximately 2476 outlets across 45 international territories.

This report provides a detailed insight into the evaluation of RFG based on its analyst coverage, macro level analysis and industry analysis.

I. ANALYST COVERAGE

Figure 1.0 Analyst Coverage

Table 1.1 Analysts recommendation

[pic 1]

(Source:au.finance.yahoo.com)

Table 1.1 indicates the recommendation from five analysts following RFG, the statistics remain unchanged from three months ago to current month. The majority of the analysts shows an optimistic on the firm’s future, suggesting the investors to buy and hold the stock rather than sell it.

Table 1.2 Price Target Summary

[pic 2]

(Source:au.finance.yahoo.com)

The share price on 6th September, 2016 is $6.89, which is much higher than both the mean and median target prices, indicates the price of the stock is more likely to drop in the future.

Table 1.3 Earnings Estimate

[pic 3]

(Source:au.finance.yahoo.com)

Table 1.4 Revenue Estimate

[pic 4]

(Source:au.finance.yahoo.com)

From the earnings estimate table, the absolute value of differences between low estimate and high estimate for the current year is [(0.48-0.44)/0.47=0.085], refers to a slight level of disagreement among the analysts. For the next year, the differences become lager [absolute value of (0.54=0.47)/0.51=0.137]. As for revenue estimate, the differences of current year and next year are [(427.56-318.00)/391090=0.28] and [(540.66-333.70)/455.77=0.45] respectively. This means the analysts’ opinions become more divergent for the future year’s performance.

Figure 1.1 Forecast Earnings Trend

[pic 5]

(Source:au.finance.yahoo.com)

The above table indicates that the analysts’ forecast the earnings both on current year and next year show an upward trend from 90 days ago to present. The increasing trend means a better market expectation and stronger confidence on RFG’s earnings both in 2017 and 2018.

Figure 1.2 Earnings Surprise

[pic 6]

(Source: Morningstar DatAnalysis Premium)

Based on the chart above, RFG Limited had experienced an earnings surprise which is below the analysts' forecasts in FY13. And in FY16, the earning per share was above 0.8% of forecasts. In figure 1.1, RFG tends to have more positive earnings surprise and the share price reflects a promising future prospect.

II. MACRO LEVEL ANALYSIS

2.1 Employment Rate

Figure 2.1 Household Discretionary Income and Employment Growth

[pic 7]   [pic 8]

(Source: IBIS WORLD)

Corresponding with Australian employment growth and real household discretionary income trend, RFG Limited's Revenue had showed a same trend from 2011 to 2016.

2.2 Inflation

Figure 2.2 Australia: Inflation rate from 2013 to 2016

[pic 9]

Table 2.2 Retail Food Group (RFG) Limited's Revenues.

[pic 10]

(Source: IBIS WORLD)

As the inflation rate shows a downward trend from 2013 to 2016, Households had surplus cash to spend on consumables which is reflected in Figure 2.1, and results in the RFG Limited's revenue increased from 2013 to 2016.

2.3 Country's Demographic Change

Figure 2.3 Population Structure, Age and Sex – Australia – 1995 and 2015

[pic 11]

(Source: abs.gov.au)

[pic 12]

Australia's population shows a decrease in age group of 0-49, and increase over 50. However, people aged 15 to 54 account for the largest share of the food and drink industry. Consequently, this group has strong driven growth in this industry. And people aged over 55 account for 26.7% and the need of daily coffee in this group is much lower. But Australia's ageing population has resulted in more consumers entering this market.

III. INDUSTRY LEVEL ANALYSIS

3.1 Market Factors

Figure 3.1 Distribution of RFG’s establishments

[pic 13][pic 14]

(Source: IBIS WORLD)

The geographic spread of the industry is closely related with population and income distribution. Consequently, the majority of RFG’s branches are situated in the eastern seaboard states since the incomes in these states are much higher and the demand for café meals are greater.

3.2 Porter's Five Forces

This section focuses on the analysis of the industry in which Retail Food Group is operating (food and drink industry).

3.2.1 Rivalry among existing firms: high

In food and beverage industry, most products have majority substitutes. It is discovered that clients are easily change their minds to choose different shops. For instance, pizza bar and café chains are two principle segments in which RGF's brands are working, however, due to the fame of other brands such as Starbuck and Pizza Hut, the competition in these two categories are likely fierce since there is no strong differentiated feature in these items.

Figure 3.2.1 Major Players in Food and Drink Industry