Is this the new FD being ultra prudent or is warning number 3 due at the end of September as other issues are uncovered.
Good news is that should their bank play up as covenants are breached then:
"major shareholders, NB Ingredients Ltd, Omnicane International Investors Ltd, and certain funds managed by Downing LLP have confirmed that they will, if required, provide additional funds to support the Company's working capital requirements."
Last time I checked the first 2 owned circa 60% of RGD so perhaps this represents the least bad option for them
Must admit to being lucky with my timing but I would be tempted to describe today's Company Update as a comedy of errors so I think the share price fall of 40% at the time of writing is probably justified. I would suggest that the main hope now would be for wholesale management changes or selling out to another company with more capable management as I am sure some of Real Goods Food's businesses have potential for better growth. I wonder how Brighter Foods is doing.
Rarely do I sell holdings but I think I might have made a mistake with this company as I have seen little evidence to suggest that management is capable of growing its businesses since I have been a shareholder. The most recent news is that the company is raising more funds, including issuing more shares at the currently depressed share price, in order to fund expansion to achieve its 2018 projected budget. In the accompanying trading update the focus is on revenues and EBITDA rather than profits/losses which worries me somewhat but best of luck to Downing and other investors.
call me cynical but if the deal is earnings enhancing rom day 1then the founder of Brighter Foods has sold out very cheaply. On the basis that he is an able entrepreneur, supported by his building the business, one must ask.
Really??? and all in cash? as pointed out.
Given RGF's dubious record on acquisitions I will continue to defer any investment for some time.
On the face of it this acquisition sounds promising, particularly as Real Good Food says it will be accretive to earnings and Brighter is working in an attractive area, so the share price rise of 10% at the time of writing seems rational. However, the fact that the founder of Brighter has not retained a large stake and has received payment in cash rather than Real Good Food shares is perhaps a bit discomforting. It should be remembered that despite employing 170 people, Brighter is a start-up company (Winner of the Wales Start Up Awards, September 2016) so it remains to be seen how sustainable it is, but the workforce certainly look happy on the Brighter web site! Need to monitor progress carefully.
My opinion is that the sale of the sugar business is the right strategic move and it reduces risk substantially, but it does not make Real Good Food into a growth business as there is still alot of work to be done in improving the financial performance of some of its smaller businesses. The company appears to be focusing on niche food businesses serving the trade and retail markets, although the Hayden's Bakery business is more mainstream rather than niche. I like this approach as the profit margins should be better with niche businesses. Now that the business has been de-risked I am happy to hold to see whether management can succeed in growing its other businesses, some of which have decent brands which are recognised within their sectors. I just hope the company will not be tempted into a major acquisition before it has got all of its existing businesses growing nicely.
I'm afraid I do not know how much Napier Brown would fetch but is the biggest sugar distributor in Europe so it is a significant business and I would expect it to be of strategic value to one or more larger companies. I would agree that selling it is the right decision as it will not only strengthen the balance sheet, it will also have a significant impact on profit margins in the long term. It should also help reduce the chance of further profit warnings. There is an interesting parallel in the milk industry where Dairy Crest is currently trying to sell its commodity milk business to focus on higher margin branded dairy products. This competition authority is currently looking at this deal and I am unsure whether there would be any competition implications for the proposed Napier Brown sale. Profit warnings are never welcome, but I do like the strategy apparent from today's Real Good Food RNS.
I reckon that when the anti competitive behaviour case of ABF against this organisation has been sorted as it will be shortly, they should start to fly again. They should win but that's the gamble. They won't be caught again though as the new hub in Grimsby allows them to import refined sugar direct from Omnicane (their 20% shareholder) in Mauritius and drop it straight into Napier brown tankers for distribution. Bye bye ABF with your dominant position. I reckon the share price will be back to 70p by March 2015. WTS. My money is in!
Bookmark the links if you wish to 'pass the LINK/s on'.... or read later?
BE A PART OF IT
# The big problem with shorting is that THEY (the shorters) WOULD most likely lose most of their money IF they just 'bet' on the price going down without trying to 'help' it down?
So, there is the 'catch 22' scenario. No one would know of an RNS to be released that will contain BAD NEWS, if they did and then 'shorted' the stock, then they are guilty of 'insider trading'.
The only sure way to short a stock and WIN is to spread dis-information to defame the company with help from other posters that are in concert with them. To ENSURE that they don't lose the biggest part of their 'short', ironically, then, they must deramp with (seemingly) believable posts.
When the pro's do it, they simply get the media or well known 'crooked' tipsters, analysts or brokers to do it for them. (say no more). .They're all in cahoots with each other!
The campaign against shorting is for the benefit of the 'cheated' investors that cannot control their investments due to the dirty tricks played out by co-ordinated deramping in order to tank the sp to abnormally low levels.
When the campaign is complete, the results will be reviewed by Govt legislators re- further action! The branch of the FSA ie FCA will be asked by Davide Serra to conduct an investigation into short selling practices, with the view to either:- an outright ban on short selling, or at the very least to be better and more vigorously regulated !
The HMGovt epetition is a regulated and monitored site with legal authority that will NOT under any circumstances allow any auspicious individuals to prevent 'others' from casting their free votes. Discussions of which are freely entered into with individual viewpoints.
I can't say for sure why Omnicane are increasing their holding.
I assume they hope to use RGD as a conduit for their output. Being a major shareholder with a seat on the board might give them some influence in supply negotiations (arguably to the detriment of RGD holders).
Also, rather bizarrely, the more RGD shares Omnicane purchase the more exceptional profit they can book to their accounts (being the difference between what they pay and the net asset value).
There was no mention in the recent trading statement about cash or banking covenants. I think that's significant. My feeling is they'll have to raise funds in the coming months if they are to stave off administration. Perhaps they'll obtain a waiver permitting Omnicane to increase their holding to over 30%, without having to make a bid. Or perhaps Omnicane will be cheeky and make an offer, in all or part with Omnicane shares....you know, those shares that have been inflated by the exceptional profit of buying RGD shares!
When looking at RGD it's also worth paying attention to Pieter Totté's business history and ventures such as Hill Station plc and Acquabella Group plc. Consider his remuneration at RGD and if he delivers on his promises.
Given all this I'm surprised that Investors Chronicle is still so positive. Perhaps they'll be proven right. Or perhaps not.
You obviously know far more than me about this! Just so I don't spend too much of my time trying to work it out, why would the main partner (and second biggest shareholder) be ramping up their shareholding if they though it likely that RGD were about to tap the market ? I would assume they would know about the debt situation better than anyone.
I wouldn't expect them to be taken private before first tapping the market for funds in order to reduce debt, which must be mounting. Why do you suppose they've just appointed Daniel Stewart as brokers?
I guess we won't have to wait too long to find out.
You may be right, but I hope not as I bought yesterday!
There is something a bit odd about the situation that they find themselves in. In view of the staff links with British Sugar I really do not believe that they intend being agents of their own misfortune without some form of strategy. Three or four ideas spring to mind regarding the timing of this legal challenge, but the most obvious one would be that they are paving the way to take the company into private ownership. Try checking the original (2013) share ownership and then work out who Omnicane are buying their shares from.
I have no inside knowledge so please DYOR.
I think cash flow at Real Good Food must be pretty dire at the moment. I can't see them surviving without a share issue, perhaps to conicide with the results in June. This might permit Omnicane to hold over 30%.
Certainly not one I'd want to be holding right now. In fact, I'd short them if I could.
Agree with your forecast but ABF, the owners of British Sugar have their own problems.
From their trading statement today: -
'Revenue and profit from Sugar in the first half will be substantially lower than last year. A reduction in EU sugar prices, ahead of regime reform in 2017, has been signalled for some time, although the speed with which the market is adjusting has been faster than anticipated. The world sugar price has also fallen to what we believe to be an unsustainably low level, putting further pressure on industry revenues and margins. This will be reflected in AB Sugar's results, particularly in China. First half sales volumes for Spain, Illovo and China will be lower than last year'.
Tate & Lyle are also affected by this reduction in global sugar price but I can see medium to long term benefits for Napier and RGF since they do have the alternate source of supply.
Napier Brown seem to have a good case regarding BS pricing policy and in due course the action may pay off. But for now the result of that pricing is going to hit results pushing the share price low. A good time to buy?
Very little interest in this company if this board is anything to go and I hope my comments below may stimulate some discussion (if they disagree, all the better).
Shore Capital's 23rd August eps estimates project 7.6p for 2014 and 8.7p for 2015. This means the company is growing its earnings at around 15% p.a. but has p/e of around 7 at its current share price of 47.5p. More importantly, all the figures, including debt and and cashflow, have recently moved in the right direction and the company is not relying on any breakthroughs to achieve its growth so I think that 15% pa earnings growth is certainly achievable now and beyond. The negatives are the continuing exposure to the politically controlled ups and downs of the sugar price/supplies in the EU, though the company is attempting to capitalise on this situation in the longer term. The pension deficit is also a negative. Having a significant commodity aspect to its business does not necessarily mean Real Good Food will remain on a low rating (look at Wynnstay's animal feed focused business on a p/e of 16, though admittedly they have assets) and if Real Good Food can put in a few years of steady growth I think the rating will improve. Would be particularly interested in any comments from anyone who works in the wider sugar industry as this is clearly a key part of the company's business into which they have put alot of strategic effort.
This business is interesting and unusual and I reckon is very much the type that the Investors Chronicle's tipsters might eventually notice (unless this puts them off)!
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