Our opinion on the current state of RFG

Rhodes (RFG) is a Western Cape manufacturer of convenience foods - started by Cecil John Rhodes in 1896. It has several well-known South African brands like Bisto, Bull Brand and Hinds. It has 15 manufacturing plants in South Africa and a fruit processing plant in Swaziland. In its results for the six months to 2nd April 2023 the company reported revenue up 10,2% and headline earnings per share (HEPS) up 37,1%. The company said, "Growth was driven by price inflation of 14.8% and strong trading performances by both the regional and in particular the international business in March. The group has invested extensively in back-up generators over the past seven years and operational management teams have performed well in difficult circumstances to limit the impact of load shedding on factory efficiencies. Diesel costs to operate generators totalled R37.8 million for the six-month period. At the current levels of load shedding the average weekly diesel cost to operate generators amounts to approximately R2 million". In a trading update for the 11 months to 31st August 2023 the company reported revenue up 10% and group volumes down 7,7%. The company said, "The negative impact of volume declines was partially offset by foreign exchange gains which contributed 3.5% to revenue growth and the Today acquisition contributed 1.1% to revenue growth". In a trading statement for the year to 1st October 2023 the company estimated that HEPS would rise by between 33% and 38%. The company said, "The regional operating margin improved strongly, mainly due to the recovery of these costs across most product categories, in particular fruit juice, ready meals, dry foods and meat, as well as the robust growth in sales and profitability in the pie category". Technically, the share has fallen from a high of 2900c in October 2016 in a bear trend. We suggest that you wait for it to break up through its long-term downward trendline - which it may be about to do. It is on a P:E of 7,15 - which looks very reasonably priced, even cheap. We believe that the share will recover over time as the economy and rand improves and as the war in Ukraine is resolved. Sales of tinned foods to China declined sharply in the short term.