Real Good Food Share Discussion Threads

[briangeeee] 20/3/2013 15:16

Regarding to the update from Shore Capital, it's important to remember that while they're the house broker, they're still a broker, and have an opinion like any of us. They will obviously have spoken to the company FD before updating, and he will probably have given them the same information he'd give any of us if we called with a good set of questions.

One of the IR problems the company suffered from before was over-optimism, and not distinguishing well enough between the forecasting function of a broker and what they should be doing themselves with investors. I see the current broker note with its significant reductions in estimates is unpalatable in its own right, but necessary as part of a process of gaining market credibility.

Remember also, that this is only a brief update note. Hopefully there should be some further notes from the house broker and others in the not too distant future that should add some flesh to the bones, and hopefully detail the plans of the individual subsidiaries. That should include Capex plans per unit, and working capital expectations. The investment community should hopefully start to appreciate the business better, with its risks and potential.

[briangeeee] 20/3/2013 14:45

Trading statements don't really have to follow any particular format, so almost anything goes as long as it leaves the reader a little clearer. I think this morning's statement does that. A few observations on the content:

"Following the difficult October to December quarter (Q3), the months of January to March 2013 (Q4) have been encouraging. In Q4, year-on-year, the group has seen a large positive swing in EBITDA, due to a stronger sugar trading quarter, combined with the turnarounds achieved at Haydens and R&W Scott, as well as improved trading in Renshaw."

It looks like underlying operations are going well, as expected despite the tough environment. I feel the poor Q3 and good Q4 emphasis is a bit of a reaction to demanding broker estimates, and an over-optimistic outlook in the interim results. RGD seem to be starting to learn how to handle the market expectation aspect of investor relations a little better. Without over-demanding market targets, the company can be much more relaxed in this regard. Of course there's nothing to prevent very ambitious targets being set internally to motivate staff.


"EBITDA
The Group is forecasting an EBITDA in the region of £10.5 million for the 12 months to 31 March 2013, which would represent a significant increase of approximately 24% over the corresponding 12 months to 31 March 2012 of £8.5 million."

From a couple of the comments above, it's not just me that dislikes this use or misuse of EBITDA.

RGD is on the whole a moderately capital intensive food manufacturing (or distribution for CR!) business. Capital expenditure uses real money, and therefore depreciation really matters. Why use a profit indicator that excludes it? No real need to give direct profit indicators at all in a trading statement, but as depreciation's not difficult to calculate, why exclude it? Excluding amortisation is equally pointless, as we'd expect very little capitalisation of costs to intangibles in such a business. Excluding it just creates room for suspicion.

However, the main problem with the EBITDA figure they quote is that it really isn't consolidated group EBITDA at all although they state it as such. It's some sort of sum of EBITDA from the individual operating subsidiaries, and excludes central costs. Maybe they're just inheriting this seemingly sloppy terminology from Shore Capital, but if they could improve in this regard, it would help clarify their accounts. BTW, I'm not an account, so please correct me if there's some obscure accounting convention that advocates the use of EBITDA in this way for food manufacturing groups!

Anyway, going back to the actual number of £10.5m versus the comparator pro-forma 12 months of £8.5m. Well, on the surface that's pretty decent, but because it's distorted EBITDA its difficult to be too sure. In the calendar 2011 twelve month period shown in the last accounts, EBITDA was £9.1m, so 15% ahead of that is pretty good. If 'ITDA' and central overheads were in proportion, I'd assume EPS would come in at 6.5 x 1.15 = 7.5p. However, I suspect there are now greater central costs, with the more centralised marketing function, and perhaps higher central function salaries. This could be offset to some extent by the prior period containing some exceptional costs taken at group level, covering restructuring (closing) some redundant subsidiaries, and some Haydens development costs that were taken at group level, so for some reason fell outside their funny EBITDA.


"Net Debt
The Net Debt position at the end of March is expected to be in the region of £27 million(£17.8 million of which is current), which would represent a significant reduction on the last reported figure for 30 September 2012 of £32.1 million and a material improvement, i.e. reduction, in the EBITDA to Net Debt ratio from 3.3 for the 12 months to 31 March 2012 to 2.6 for the 12 months to 31 March 2013, based on the above figures. £17.8 million of the Net Debt is current, primarily Invoice discounting and Stock financing, with the balance of £9.2 million being repayable over the following five years."

I'm surprised it's down, and may just be a timing issue. PT was pushing capex quite hard, so either they're a bit behind schedule, the business is performing better than expected, or they've optimised working capital. I suspect a bit of each, but pleasing nonetheless. The size of the business is growing rapidly, and the debt in proportion is falling. They're generally delivering as indicated.


"Quarter 4
The Group's current trading levels are healthy, driven by improvements across the five business units and turnover in the quarter is expected to be around £65 million, compared to £56 million in Q4 2012. EBITDA in Q4 is expected to be £3.9 million, compared to EBITDA for Q4 2012 of £0.1 million, with all businesses making a contribution to this improvement."

There's no doubt that food's a competitive sector, but companies that can innovate in way that appeals to their customers and market effectively will do well. Hopefully this strong start to the calendar year will be carried forward, and we'll see continued growth from all business units.


"Funding
As previously reported we are now operating with our new five year term financing arrangement with PNC Financial Services UK Ltd, extending the successful partnership we have enjoyed since 2008. The terms are improved, with overall facilities increased by 25% to £50 million, increasing headroom accordingly and providing the capacity we need to support our growth plans. We are also pleased to confirm that Lloyds TSB is providing all our day to day clearing and ancillary facilities. In a difficult market the board is extremely pleased the confidence this demonstrates in our business."

Yes, they've got a reasonable debt facility in place - necessary, but not headline news to those who believe the business is performing well. Hopefully over time they will be able to reduce costs by cutting the level of the facility, but they're probably conscious of the working capital requirement when Omnicane sugar becomes available in 2016.


"As I commented in January, the changes we have made in the Group have produced positive results and these are now beginning to show through, as demonstrated by our Q4 results. In line with the rest of the food sector, I believe that 2013 will be a challenging year, but I am confident that we are in a strong position to achieve our goals for this year and remain on course to achieve my longer term vision for the Group."

Yes. PT's got a pretty significant option package that is activated upwards of £1 share price, so there's a strong personal incentive there. I was a little disappointed by his huge pay rise last year, following on so soon after the award of the options, but it doesn't diminish their significance too much.

Overall a pretty positive indicator, and in line with the positive story as generally presented by the company.

[cockneyrebel] 20/3/2013 14:02

Yes, swapping the periods around masks a whole can of worms.

I'm talking about the Dec 2011 actual year end. compaed to what will be done in 2013.

It's a fall, no need for the pro-forma 2012 - just comparing one year end with another.

6.5p 2011, 6.4p forecast 2013.

This isn't a growth co, all that is growing is the debt and the amount the co can borrow still.

All imo/dyor etc.

CR

[smudge104] 20/3/2013 14:02

nice to have some good news here

CR hows your "SHORT OF THE MONTH" going on RGD haha 50s soon enough

[140661] 20/3/2013 13:52

CR, I am using the March 2012 pro-forma quoted by Shore's which compares similar periods. Your figure is to Dec 2011, we are comparing March 2012 and March 2013, we don't have figures for Dec 2012 or Mar 2011. I have copied below the conclusion from Shore Capital note of this morning:

Summary and valuation
RGFC has reported strong growth in profit generation year-on-year, albeit behind our slightly optimistic
expectations. We would suggest that part of the reason for the underperformance has been a subdued UK food
market around the Christmas period. Looking ahead, we still expect the group to continue to deliver further
strong growth as we move into its FY2014 financial year. RGFC shares currently trade on an FY2013F PER of
5.6x and an EV/EBITDA multiple of 5.0x.

[cockneyrebel] 20/3/2013 13:51

You see when you account using PBT, Operating profit, net profit, earnings per share, EBIT, EBITDA or whatever looks best on the day then that distorts the true picture imo.

Just like comparing the debt to the period that suits you best.

All imo/dyor etc.

CR

[cockneyrebel] 20/3/2013 13:32

Well you are keen to use Shore's estimates - I suggest you look at their note.

Their note today quote the '(A)' actual EPS of 2011 of 6.5p, and the eps forecast to be 6.4p for 2013.

Are you arguing with their figures?

CR

[140661] 20/3/2013 13:25

CR, I suggest you stop putting up stupid statements which are clearly wrong as you are now embarrassing yourself. Let me put the figures down and suggest you look at the last set of accounts and today's announcement. EBITDA figures have increased from £5.6m (2010), £9.1m (Dec 2011) to not less than £10.5m (March 2013). The EPS figure for March 2012 was 5.6p and today we have been told by Shore Cap 6.4p. Where is the reduction? This company is increasing earnings and reducing debt. Have you started covering your short? I hope not. LOL

[cockneyrebel] 20/3/2013 13:01

How is eps falling from 2011 to 2013 'growth' 140661 ?

All you have here is a high debt, low margin distribution co that isn't growing earnings, run by a guy who has overseen the demise of several businesses? A co that frequently misses forecasts.

No control over their costs, squeezed when reatailers demand cost cuts, fluctuating global sugar prices that don't seem the benefit the co when they go up or down. It's AIM, it doesn't pay a divi.

Why would I pay a PE of 6.7 for that?

Totte should be paying me to take shares off of them - or is that what he's doing with Omnicane? :-)

CR

[140661] 20/3/2013 12:49

Lets hope this buying continues and who knows may be some directors buying!!

The good point about today's announcement is it shows the business is moving in the right direction with 20% growth this year and 15% growth forecast next year. I was a bit disappointed to see next years EPS below 8p but I am very hopeful the outcome will be well ahead of forecast. Unfortunately, management got carried away with a great result to March 2012 (over 100% growth) and this year has been far more difficult than anticipated so cutting back expectations is wise at this stage. Even on these reduced figures the shares look very cheap on a PE of 6.5x to March 2013 and a forward PE of 5.5x. DYOR and GLAH

[cockneyrebel] 20/3/2013 12:45

A cut to forecasts then.

So RGD will do less eps in 2013 that they were supposed to achieve in 2012 originally.

Be prepared for a critical final Q again this year imo.

Q3 - talk that right down, say things are tough then when you say Q4 was a bit better than expected you hope the punters will lap it up.

Sorry - been doing this too long.

Basiaclly eps from 2011-2013 will have fallen.

That's the fabulous growth you reckon RGD are doing ah 140661 ?

CR

[felix99] 20/3/2013 11:59

Well SC is the only forecast in the market so that is market expectation. So effectively this is a profit warning compared to previous market expectation of 7.5p.

Secondly If one were to be super critical its a moot point as to whether one might argue than following the last trading update it was clear to mgt they were not going to make 7.5p SC forecast. To me they should have indicated that miss in the last trading update in January, having had a duff Christmas.

Quite clearly they have exceeded the expectations they had in January at the time for Q4 and even despite this improvement SC is still dropping the forecast by 15% or so to 6.4p.

Or is the plan to come in at 6.8P or so and look good :-)

[shanklin] 20/3/2013 10:59

Rather a shame PT couldn't state in the RNS that they were going to significantly miss market expectations. Whatever other verbiage was in the RNS, it is completely inappropriate that this information was missing.

[briangeeee] 20/3/2013 10:33

New SC forecast for 2013 - EPS 6.4p
New SC forecast for 2014 - EPS 7.3p

14% growth YOY isn't bad, and at least they should have a decent shot at meeting these forecasts.

[spaceparallax] 20/3/2013 10:32

Wow, some turnaround in the last two quarters trading - looking solid for the YoY

[cockneyrebel] 20/3/2013 10:05

Agree Typo, the tone sounds great but when you look at the detail it's a bit like listening to Ed Balls, very little detail.

MM's doing a nice job of trying to attract buyers but looking at the trades I see more sells than buys this morning - hardly a stampede to snap up this bargain distibutor imo.

Still - £50m debt facility now - looks like Totte will reduce debt from £28m to £50m just as he's reduced debt over the past 3-4 years.


And agree - watch the cashflow in the next rsults imo - you can tamper with profit but you can't tamper with cashflow.

I guess being such a bargain and with that t/s out the way Totte and the board will be loading up with shares here.

All imo/dyor etc.


CR

[briangeeee] 20/3/2013 09:55

It's always pleasing to see a trading statement greeted with approval by the market, even if it is to move the price from extremely depressed to just very depressed! I'll put down a few thought later this morning when I get a moment.

[typo56] 20/3/2013 08:51

Not as bad as I'd expected, although I can't think it's enough to change opinions here, mine included.

The trouble with a short trading statement like this is it can be very selective. You need more numbers to go on .... and I do so hate EBITDA and the mixed comparison periods.

At 31 March last year net debt was about £28.7m. Net debt is forecast to be £27m at 31 March 2013 but without the Omnicane injection of £2.4m net debt might stand at £29.4m. So the question remains, with all that glossy EBITDA, why the negative cash flow? I'd watch the cash flow, not the EBITDA.

[shanklin] 20/3/2013 08:43

140661

AIUI, ignoring Napier Brown, RGD's business is very seasonal, with Q3 being the big quarter and the other 3 quarters being small beer in comparison.

In terms of volumes, I had understood NB was much the same, so I am left wondering if the margins achieved on sugar were particularly low in Q3 and particularly high in Q4, with RGD finding it difficult to control this margin as much as it would like.

Any information you could get on the drivers/seasonality of profitability in different parts of the business would be helpful in terms of getting a grip on what is going on here.

Cheers, Martin

[cockneyrebel] 20/3/2013 08:27

Indicating around 8.5p ah 140661? Will that be the same as the 7p they indicated this year?

If they do 6.5p eps it will be arrived at in some odd way imo.

And you need to be careful who you throw around the 'liar' comment about - you show me where I've been a liar? I've pointed out all the less that straight behaviour here, Tottes past history, comparing debt with the period that suits them etc.

My bet is the smart money sells the rally.

All imo.

CR

[140661] 20/3/2013 08:18

BrianG, I would be interested in your thoughts on today's announcement. I am greatly encouraged and like the fact PT is balancing up the good news with a comment on 2013 being challenging. Most food businesses have also commented that 2012 was a difficult year and the fact RGD achieved 20+% growth in the circumstances reflects well on the business. I am trying to find out whether Shores have revised their forecasts for 2014 but suspect this may wait for the prelims in June. However, from my conversations with PT over the last 6 months I know he is very confident in the potential of the business. I am also expecting to see continued buying by Omnicane. All good.

[140661] 20/3/2013 07:54

CR, you spread lies and mistruths like no one else I know. The EPS this year will be around 6.5p, the debt is down by £5m since September, 2013 is going to be challenging but I believe you will find the company indicating around 8.5p EPS FOIR march 2014. You are short and have been saying RGD is going broke, no its not, that its profits are under pressure, no they have just had a near £4m EBITDA quarter. GLAH DYOR and ignore the idiot CR he is just trying to lose you money and cannot admit when he is wrong.

[shanklin] 20/3/2013 07:48

There's no doubt the tone of this update is a great deal more positive than the last update. Indeed, the two are so different in that respect that I almost feel as though each RNS should state whether Totte was on uppers or downers when he wrote it.

It would certainly be nice if RGD could get itself to a position where its showing steady progress rather than...

...AAAARGH, trading is terrible, followed two months later by....

...YEE HAH, everything is super-duper.

Anyway, GLAH.

[cockneyrebel] 20/3/2013 07:46

As far as I can see brokers and the mkt are still expecting the 7p eps that both the co a brokers have guided too. Gonna miss forecasts by a mile and the year ahead for the co will be challenging - nice.

CR