RFG Holdings was listed in 2014, a couple of years after Capitalworks backed a management buyout and took a stake of about 40% in the company .At time of writing, RFG is trading at 880c. You don’t need your calculator to figure out that this hasn’t been a happy story. Capitalworks rolled the investment into new funds in 2021, as the original funds had reached the end of their mandated lives and it clearly wasn’t a good time to sell the stake.
RFG has made the most of its listed platform and has acquired a number of businesses. This has led to expansion beyond the original canned fruit business, with recent dealmaking activity focused on the pies category. Performance at category level can vary wildly, depending on a multitude of factors. This is why food manufacturers tend to have a portfolio of businesses.
With the international result largely attributed to rand depreciation and a failed peach crop in Greece, the market didn’t get too excited about the futureThe geographic split came to the fore in 2022, as the international segment moved from years of marginal profitability to a bumper R209m in operating profit. In contrast, the regional business dropped from R412m to R324m.
Another source of major pressure is load-shedding, driving a weekly cost of R2m for generators. To give context, the 2022 dividend — a bumper year — was R76m. Load-shedding can easily wipe out the dividend for this group and reverse the 100 basis points improvement in normalised operating margin that was achieved over the past five years.
Free cash flow looks set to disappoint this year, as the group is capital intensive and primarily reliant on South African consumers and operating conditions. With solar generation behind the curve in the group, there isn’t much mitigation of load-shedding either.The share price is sending a strong message and has no technical support levels to fall back on. IM won’t be buying any time soon.
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