Retail Food Group, the company behind Brumby's Bakery, Donut King, Gloria Jean's coffee chain and Crust Pizza, has slammed analysis that led to a slump in its share price as "premature, precipitous and, with respect, an exercise in speculative guesswork."
In a scathing release to the market, RFG accused investment bank UBS of having "no insight" in tipping the company would be hard hit by changes in accounting standards which will take effect in two years.
RFG added that its lenders had expressed no concerns about the effect of the changes on its balance sheet, and it would update the update the market when it had reached a conclusion on the numbers.
RFG's shares tumbled 11.3 per cent on Monday after UBS, which has a "sell" rating on RFG, sliced its price target for the company by 17.5 per cent to $4.70 "to better reflect the risk of upcoming accounting standard changes". Â
Shares bounced back somewhat on Tuesday, with RFG closing up 15¢, or 3.46 per cent, to $4.78.
Under new rules from the International Accounting Standards Board, operating leases will be consolidated onto balance sheets globally in the 2019 financial year.
RFG's latest disclosures show it has $15 million in lease debt, but UBS predicted this would be much higher.
RFG told the market on Tuesday the UBS report made "broad unsubstantiated assumptions" about how the accounting changes would effect the company, and had failed to consult with it.
"RFG has little insight into the basis upon which the UBS reports were prepared. Indeed, at no stage prior to publication of the UBS reports did UBS consult with or seek engagement with the company regarding the matters outlined in the UBS reports," it said.
"Significantly, UBS would have no insight into the company's position in respect of the impact (if any) of [the new accounting standards], nor that of its bankers."
RFG also said it would update the market on the likely impact of the accounting changes in its financial statements, as per usual practice.
"RFG considers that any assumptions as to the potential impact of [accounting changes] on the company's financial statements, lending covenants or other debt arrangements is both premature, precipitous and with respect, an exercise in speculative guesswork.
"Importantly, there has been no change to RFG's business model or underlying cash flows, and RFG's lenders are aware of the impending accounting changes ... from 1 July 2019.
"The company continues to enjoy a strong relationship with its lenders, who are well aware of the leasing structures which have been employed by the group since listing in 2006, and have expressed no concern in respect of the same."
But Dean Fergie, director and portfolio manager at Cyan Investment Management, was unimpressed with the ASX announcement, describing it as "reactive".
"I would suggest that RFG management appear to be spending too much time focusing on their share price and not on their business," he said.
"The company should not be reporting on movements in share price, volumes or broker reports. I dare say they have never commented when analyst forecasts have been positive.
"It is reactive and come across very poorly."
RFG is one of the ASX's most shorted stocks, meaning investors are betting its shares will fall. RFG was contacted for comment on when it would inform the market about the effect of the accounting changes.
UBS analyst Jordan Rogers told clients on Friday,"Our interpretation based on financial disclosures is that this is a lease figure that is net of sub-leases to franchisees.
"When reviewing against the accounting standards, we believe that it is likely that the full lease obligation – including where RFG has the head lease agreement for an outlet with a shopping centre and has sub-let to a franchisee – will be consolidated onto the balance sheet.
"Although RFG's cash flows should not be affected by (the new rule) we believe the increased disclosure on leasing arrangements will highlight that the company could be liable for lease payments should a franchisee come under financial difficulty.
"We maintain our Sell rating on RFG, and now apply a $105m discount to valuation when setting our price target."
A spokeswoman for UBS said the company provided "insightful, relevant research on companies to help our clients with their investment analysis and this research is no exception."
1 comment
New User? Sign up