Analysts recommend “sell” on Retail Food Group shares

RETAIL Food Group shares have enjoyed a slight bump today, but analysts are still rating the stock a “sell” after fears it will breach its debt obligations.

Retail Food Group, which operates the Donut King, Gloria Jean’s, Crust Pizza and Brumby’s Bakeries brands, has seen its share price shed almost 90 per cent of its value in the past year. Photo: iStock

RETAIL Food Group shares enjoyed a slight bump today but analysts remain unconvinced the company can turn around with a number recommending investors sell up.

In intraday trading shares bounced 2.85 per cent higher to 54c today.

It came after shares hit a new all-time low of 52¢ on Wednesday, meaning they have shed almost 90 per cent of their value in the past year.

The new low this week comes after the Southport-based franchisor, which operates brands including Donut King, Gloria Jean’s, Crust Pizza and Brumby’s Bakeries, flagged a net loss of $87.6 million for this financial year.

Online forums have been awash with punters urging each other to “take what they could get” for RFG shares and get out amid concerns it may breach the strict lending covenants it was working under.

Franchise chain Retail Food Group's (RFG) share price plunged earlier this year after it flagged a significant statutory loss this financial year. AAP Image/Dan Peled

The company’s $267 million of debt is 2.8 times its market capitalisation of $95.95 million.

In the past week analysts have been giving RFG the dreaded sell rating.

Chris Taylor, of Wilsons, recommended sell, writing that the company’s trading performance has continued to be impacted by a difficult retail market.

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UBS has also retained its sell rating and cut its target price to 50c.

According to James Mickleboro at The Motley Fool, UBS expects earnings per share of 19c in FY18 and approximately 14c in FY19.

Richard Hinson, the new boss of troubled franchise operator Retail Food Group at the Brumby's in Red Hill. AAP image/John Gass

“While this means Retail Food Group’s shares are trading at just four times FY19 earnings, I wouldn’t suggest investors snap up shares. With the company possibly going to breach its debt covenants, there are a lot of dark clouds hovering above it,” Mr Mickleboro wrote.