Real Good Food Share Discussion Threads

[140661] 04/6/2013 17:32

Typo, sourcing sugar is currently a constraint on Napier Brown. This is why the Omnicane relationship has such significance and why the Company is building a sugar handling facility at Immingham which will provide an unparallelled facility to import sugar from all parts of the world. This facility is due for completion in Summer 2013. I would suggest that the fact PT is spending a lot of time with Omnicane suggests this facilty may be needed sooner than expected. Let us see what the prelims have to say.

[typo56] 04/6/2013 17:02

Do you feel the business is currently constrained by limited supplies?

Does 'significantly larger' mean 'significantly improved cash flow'?

[140661] 04/6/2013 16:29

Since announcing the disappointing 3rd quarter update in Jan, the company has announced a strong 4th quarter and its second largest shareholder has increased its stake 3 times, yet the price has barely moved. The prelims will be out in the next few weeks and if PT's comment two weeks ago that he was very happy with progress across all divisions is accurate then we may have some better than expected news. I understand PT has also spent a lot of time recently with Omnicane and this relationship has the potential to make RGD a significantly larger business. Hopefully all will be revealed soon, in the meantime RGD's share price has about as much excitement as watching paint dry.

[140661] 25/5/2013 08:10

kj, could not agree more, all very frustrating. On a positive note the company is performing well and I am hopeful the prelims in the next few weeks will bring further good news. The shares are suffering from shareholder apathy and lack of newsflow. As previously highlighted this should be changing soon with broker research imminent and institutional meetings scheduled for June. I still firmly believe this share will deliver big time if we are patient. PT\'s last conversation confirmed he had never been happier with the business and the company\'s plans were firmly on track. Be patient a bit longer and you will be rewarded. The other interesting point to note is that strong market runs have historically been large cap driven and then the second wave is small caps. No one can dispute that the FTSE has had a very strong run but AIM has significantly lagged. If history repeats itself and it normally does then AIM stock like RGD which trade on a PE of 5x and are tightly held will become targets for the funds and at that point we may have the long awaited fireworks with this price. AIMHO and GLAH

[kjpounder28] 23/5/2013 19:10

Hasnt this share took off yet. Im getting a little bored of waiting :(

[thoseintheknow] 21/5/2013 07:21

news is in the air, can I smell a dividend coming

[140661] 20/5/2013 20:28

Pat Ridgewell, who owns over 30%, acquired his shares in RGD at over £1 when he sold his business to RGD in an all paper offer. He never sold any shares to Omnicane when they were paying 60p so I am guessing he sees an exit well in excess of £1 and without his shares the company cannot be taken over. The share option scheme which only kicks in when the shares reach a £1 is also an indication of management aligning themselves with shareholders and a rising share price. There is no evidence of the company's management doing anything other than trying to build a strong growing business.

[typo56] 20/5/2013 20:13

Does it really matter that much what Omnicane paid? I think more important is understanding what their motivation is and is it aligned with the interests of the minority private investors.

As it stands, what happens to RGD is in the hands of the major holders and the lenders. One of the major holders is on the board and they are potentially also a major supplier (surely should be declared as related party transactions?). Private investors don't really get a look in, do they?

[140661] 20/5/2013 19:35

Omnicane took 5% in the placing at 60p, read the RNS, and acquired the balance at around 60p, there is no evidence of the shares ever being near 30p when they bought. If you looked at the trades on the day, as i did, you would see the vast bulk of trades went through around 60p.

[cockneyrebel] 20/5/2013 17:58

Omnicane got their 9% in the placing at 60p which was an 8% premium to the mkt price. They already held 11% that they had acquire in the lead up to that. As they never said what they paid for the shares and don't have to you can't know for sure but there was nothing in the trades prior to the placing to suggest they paid over the market for the initial 13%. They could have paid anything from 33p to 60p in the lead up to the placing. The share price was around 50p when they announced they had 13% and was as low as 30p when they likely started buying and caused the share price rally imo.

CR

[140661] 20/5/2013 17:21

I remember the day they bought their first 12% tranche and it was around the 60p mark. They later subscribed for 5% at 60p so the average for their first 20% is around 60p.

[briangeeee] 20/5/2013 17:04

Am just using a little phone, but I certainly don't recall that they acquired their first 20% at 60p. I think it was just the last few percent that took them to 20%. Could be wrong of course.

[140661] 20/5/2013 16:45

BrianG, Omnicane acquired the first 20% of their stake at 60p and the balance at say 38p, this gives a weighted average price of just over 57p. As you say I am not suggesting anyone base their investment decision on RGD's net asset position but the fact its at such a premium to the current price is another helpful factor. Finally, I would be extremely happy to see the price at 120p in the not too distant future, fingers crossed you are right.

[typo56] 20/5/2013 15:44

If and when it comes to the crunch I wonder how well property, plant, equipment and even inventories would pass the test.

Net current assets have been falling year after year and since 2010 it has had traded with net current liabilities...and that's including inventories.

[briangeeee] 20/5/2013 14:55

Yes I generally think it's good value. In terms of the points you make, I'm not sure Omnicane's mean purchase price is nearly as high as 57p. I haven't checked back and tried to work it out, because I don't think it matters too much, but it's probably quite a bit lower. The amount they bought at 60p was only about 6 or 7% from memory.

The point about the P/E is right as far as it goes, but some caution is required when comparing the P/E of companies with different levels of relative net debt. You can gear a business up by holding debt inside the business or holding it outside. I did come across a helpful illustration of this recently, but don't recall exactly where. Sometime an EV type ratio is helpful. Hopefully it will be a diminishing issue with time anyhow.

The large amount of goodwill on the balance sheet probably passes an impairment test each year, and it remains in place, but I wouldn't be too sure it actually means very much. I'd say that if they keep on getting the operational aspect right, the company could be worth more than 120p in the not too distant future. However if the business doesn't go well, there won't be much price support from the largely goodwill based balance sheet.

[140661] 20/5/2013 11:20

BrianG, as you say it does not really matter if Omnicane gain some additional advantage in buying RGD shares, the good news is they appear to be an ongoing buyer.

I was speaking to a fellow RGD shareholder yesterday and we went through all the reasons why we feel RGD is significantly undervalued, let me know if you agree.

1. The board are significant shareholders and therefore highly committed to the company's success. Pat Ridgewell family trust own approx 30%, Omnicane represented through their CEO own 23%, Pieter Totte owns 4% and the other non execs own 0.5%, so around 60% held by the board. In addition, we have the share option scheme that only kicks in when the share price reaches £1.

2. All purchases by the board in the last two years have been well above the current share price and Omnicane have paid an average of around 57p per share for their 23% stake in the last year.

3. Despite tough trading conditions across the food sector the business is showing solid growth. For the year ended 31 March 2013 the Company is looking at EBITDA growth of 24% and the forecast for this year is for EPS growth of circa 15%.

4. significant improvement in performance has been achieved at the two loss making businesses. In 2012, R&W Scott produced an operating loss of £1.34m, this had improved to break even at the half year and we will hopefully see a positive contribution for the full year, representing a £1.34m improvement on last year. Haydens produced an operating loss of £1.33m in 2012 and an operating loss of £572k at the half year. As flagged by the company the performance at Haydens has improved in the second half post the changes in working practice and the modernisation of the plant and its possible that Haydens will also make an operating profit for 2013. If these two divisions can maintain this improvement the company would be £2.6m better off than in 2012.

5. the current share price puts the company on a PE of 5x prospective EPS of 7.3p, a significant discount to the market.

6. the shares are also supported by net assets of over 120p per share and a likely break up value of at least twice the current share price.

[typo56] 20/5/2013 09:33

All you need now is for the circle to be completed by RGD buying shares in Omnicane and in doing so book a profit on the balance sheet! Kind of thing Stepehen Dean (RIP...perhaps) achieved in such style.

[briangeeee] 20/5/2013 09:05

I didn't read it in that way, and it probably won't be clear until the AR is published. In any case, I didn't think the quantities mattered too much - just the fact they'd found a little wheeze to smooth their bottom line! Sell off some land they hold below realisable value, and use the proceeds to purchase shares in a company that's trading at a substantial discount to book. I don't think there's much to read into it from an RGD point of view, but I don't think I'd want to be an Omnicane shareholder. Let's hope this hypothetical bid isn't all-paper!!

[typo56] 20/5/2013 08:43

BrianGeeee, I read it that Omnicane booked exceptional items of Rs 355.6 M of which Rs 233.1 M is the negative goodwill on RGD and the rest is profit on the land sale.

I've tried to reconcile the £4.9m exceptional "profit" to the number of shares they may have purchased in y/e 31/12/2012 and the possible price paid and RGD NAV of £82.8m, but I couldn't make it add up and have now rather lost the will to live.

[140661] 20/5/2013 07:59

BrianG, I think we cam rest assured Kenya will be supplying to RGD in 2014.

[typo56] 20/5/2013 07:44

The negative goodwill means they're saying they acquired RGD shares below net asset value? An asset value that's been bloated by a large amount of goodwill on the RGD balance sheet? So they've effectively valued RGD at about 125p per share?

I might try doing the sums later to see if that adds up to Rs 233.1 M.

[briangeeee] 19/5/2013 21:50

It's interesting that apart from anticipated future operational synergies, Omnicane have a secondary motivation for buying RGD shares. Omnicane haven't had a great year operationally, with pre-exceptional profits down from £6.5m to £3.9m. However, they've been able to book an exceptional profit of £4.9m on acquisition of RGD shares and the sale of some land. The split between the elements isn't stated.


The reason seems to be the negative goodwill on acquisition, which comes mainly from the large goodwill element on RGD's balance sheet from the historic RTO of Napier Brown! I suppose accounting rules are accounting rules, and it probably keeps their shareholders happy, because instead of a large drop in EPS, post-exceptionals it's roughly flat with the prior year.

I note Kenyan operations are due to start mid 2014, so it will probably be 2015 before RGD see sugar from Omnicane Kenya, if indeed they're planning to source from there.

[140661] 19/5/2013 20:21

BrianG, I based my figure on the basis of a normal 1/3rd to 2/3rd split between interim and final so 1p final would suggest an annualised dividend of 1.5p and on a share price of 37.5p equals 4%. I would certainly prefer a share price of 66p!!.

[briangeeee] 19/5/2013 18:05

I'd much prefer a 1p dividend put us on a prospective yield of 1.5% with a share price of 66p, than a 4% yield with a share price of 25p!