Our opinion on the current state of RFG

Rhodes Food Group (RFG), with its roots tracing back to Cecil John Rhodes in 1896, has grown into a prominent Western Cape manufacturer of convenience foods. The company boasts a broad portfolio of well-known South African brands such as Bisto, Bull Brand, and Hinds, operating across 15 manufacturing plants in South Africa and a fruit processing facility in Swaziland.

For the year ending on 1st October 2023, Rhodes Food Group reported an 8.7% increase in revenue and a significant 35.3% rise in headline earnings per share (HEPS), alongside an improved debt-to-equity ratio from 36.2% to 21.3%. However, the company faced challenges with a 12.9% price inflation and a decline in total group volumes by 8.3%, attributed to slower consumer spending and competitor promotional activities. Despite these hurdles, the rate of volume decline showed signs of slowing, especially in regional volumes.

The trading update for the five months ending on 29th February 2024 revealed a 5.1% revenue increase with price inflation at 7.9%, while volumes decreased by 5.2%. This period saw a deceleration in sales of long-life foods, particularly in January and February, although the meat products category continued its positive performance from the previous financial year. The company also noted improvements in the vegetables and salads categories, with the fruit juice and dry foods categories delivering robust growth.

From a technical analysis perspective, Rhodes Food Group's share has been in a bear trend since reaching a peak of 2900c in October 2016. However, a significant development occurred on 13th November 2023, when the share price broke through its long-term downward trendline at 1220c. Currently trading at a price-to-earnings (P:E) ratio of 6.88, the stock appears reasonably priced, if not undervalued.

Looking forward, there is optimism for Rhodes Food Group's recovery over time, driven by improvements in the South African economy, the resolution of the war in Ukraine, and potential normalization of trade relations, including tinned food sales to China, which experienced a sharp decline in the short term. Given its established brand portfolio, manufacturing capabilities, and strategic responses to market challenges, Rhodes Food Group is positioned to navigate the complexities of the convenience food sector and capitalize on emerging opportunities for growth and expansion.