The Retail Food Group Limited (ASX: RFG) share price is down 17% after announcing a large capital raising.
Retail Food Group is an international food and beverage business. It has a multi-brand retail food franchise business, it’s also a roaster and supplier of coffee products. It also operates in the food service and dairy processing sectors. Some of its brands are Gloria Jeans, Brumby’s, Donut King and Crust Pizza.
Retail Food Group’s Capital Raising
The company, which has seen its share price suffer hugely over the past two and a half years, is going to carry out a large capital raising to recapitalise the business.
It is doing a fully underwritten placement to professional investors at $0.10 per share to raise $170 million. It’s also going to offer shares to regular investors at $0.10 per share to raise $20 million.
The net proceeds will be used to primarily repay debt, strengthen the balance sheet and provide working capital.
It also announced debt restructuring, with proposed refinancing of senior debt arrangements including debt repayment, debt write-off and a new $75.5 million facility to mature in November 2022.
RFG Executive Chairman Peter George said: “We are delighted with the support received for the placement, and welcome a number of highly credentialed and supportive institutional investors to the shareholder register.
“The recapitalisation is transformational for the RFG business and will allow the RFG team to continue to harness the underlying value of the franchise network and enhance franchisee profitability.”
The franchisor also provided some guidance of underlying EBITDA (click here to learn what EBITDA means) for FY20 to be in a range of $42 million to $46 million assuming full year contributions from all continuing business units, but excluding the impact of accounting changes of AASB15 and AASB16.
The company outlined a number of initiatives to reduce costs, improve efficiencies and help franchisees.
Is The RFG Share Price A Buy?
After the debt restructure and capital raising it is expected that RFG’s net debt will go from $260 million (around 6x FY20 underlying EBITDA) to $54.6 million (around 1.2x FY20 underlying EBITDA).
RFG looks as though it will be placed nicely to rebuild, but it’s got a long way to go. If you like high-risk ideas then this may be one to consider if it can sustainably grow earnings, but it’s certainly not one I’d put in my portfolio. For exciting growth I’d much rather buy the shares in the free report below.
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