7:59 cut – RGD

Real Good Food (RGD) – FY 2019 Results

Real Good Food have moved from being a “unprofitable cash-absorbing collection of six businesses with little clear strategic direction” at the start of the year to a “focused group” comprising the heritage Renshaw cake decoration brand and Brighter Foods, a collection of (relatively) healthy snack bar brands including Wild Trail. They report positive EBITDA of £1.9m but this was swamped by other costs, including finance costs of £4.4m.

I have spent some time looking at the numbers and it is clear that they now have two valuable operating businesses with significant prospects. Renshaw has clear brand value and on the snack bars side they say, “the only current constraint on sales is the business’s ability to make the product”, but that it has “the ability to grow further without more significant investment”. For FY2020 there appears to be a very significant improvement baked-in as capacity has already very significantly increased from the FY2019 average.

On the other side the company has a very significant high-interest debt load, a fairly large sized pension that is in deficit and a large number of convertible loan notes outstanding. It seems likely they are also exposed to commodity sugar prices and Brexit disruption.

Overall it is very unclear whether the equity has any value. It is also very difficult to trade with only a handful of small deals most days, a tiny normal market size and a spread of over 5%. Given the degree of uncertainty I would think it natural to anchor the equity value at the 5p convertible loan note exercise price versus the current price of 7.25p.

I will be keeping a close eye on this company in case the situation changes.