Retail Food Group shares (ASX:RFG) are showing tentative signs of recovery after a significant selloff, with technical indicators suggesting the stock may be oversold. The question remains whether this is a genuine turning point or merely a temporary pause.
RFG shares experienced a 2.02% increase today, closing the week at A$1.26, off the recent low of A$1.22. Despite this recent uptick, the stock remains down 51.16% year-to-date, with a 12.5% decline occurring in the past month alone. The Relative Strength Index (RSI) of 27.8 indicates that the stock is currently in oversold territory, potentially attracting bargain hunters, yet operational performance has not exactly been confidence building.
The company has been actively pursuing strategic initiatives to bolster its growth. In February, RFG announced a 20-year development agreement with Restaurant Brands International to bring the Firehouse Subs brand to Australia. The plan involves opening 165 restaurants over the next decade, with the first location slated for the first half of FY26. This move targets Australia’s sandwich market, which is valued at over $1.7 billion.
RFG’s financial performance in the first half of FY25 showed some positive momentum. Underlying revenue increased by 24.7% to $66.5 million, and underlying operating earnings (EBITDA) rose by 15.8%. Statutory net profit after tax surged nearly 74% year-on-year to $7.3 million. The company also expanded its retail footprint by opening 25 new domestic outlets and acquiring 22 CIBO Espresso stores.
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However, the company also launched a $47.4 million capital raising initiative in March, comprising a $24.9 million share placement and a $20 million debt facility, intended to support business growth and strengthen the balance sheet.
Analyst opinions on RFG’s prospects are mixed. Bell Potter maintains a ‘Buy’ rating with a target price of $2.60, citing the company’s strategic brand consolidation and franchising efforts. In contrast, Simply Wall St highlights concerns over RFG’s revenue forecasts, projecting a 4.4% annual decline over the next three years, which contrasts with the broader industry’s expected growth.
RFG’s recent performance presents a mixed picture. While oversold conditions and strategic expansion plans offer potential upside, the company faces challenges including revenue decline forecasts and the dilutive effect of capital raising activities. For now, this is a case of fundamentals overruling technicals, with today’s move off the low potentially a pause whilst the RSI cools. Upside catalysts may be needed to shift sentiment meaningfully after a difficult year for holders of RFG.
