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Real Good increases debt
The Real Good Food Company (RGD) blames factors including commodity price increases for a hike in its half-year net debt.
In an interim trading update, the AIM-quoted food group observes that both rising commodity prices and 'additional stock levels' have led to an increase in its debt from £28.3 million to £31.9 million, while working capital has grown from £33 million to £39.3 million. Sales over the period advanced 21 per cent to £110 million with EBIDTA (Earnings before interest, depreciation, taxation and amortisation) climbing from £600,000 to £2.7 million. However RGF is keen to emphasise that due to 'growth in earnings' its debt cover has improved 'significantly'.
RGF operates several divisions in sugar trading, dairy, home baking ingredients and a bakery. At Haydens, its bakery business, the company says its distribution centre has been completed and is now 'fully operational' and helping 'to drive an improved performance'. However, the company cautions it was been affected by both 'delays in the factory modernisation programme' and 'higher than expected commodity costs.'
Following the results analysts at house broker Shore Capital have held their forecasts. The broker is forecasting pre-tax profits of £5.8 million (for earnings of 6.3p a share) for the full year 2011, with profits climbing to £6.6 million and earnings reaching 7.2p a share in 2012.
Growth Company Investor recommended shares in Real Good Food last September at 23p and this June we advised taking profits at 71.25p, since when the shares have slipped to 69.75p. The company faces the increasing pressure of rising commodity prices, affecting all its divisions, but in particular its bakery and sugar trading operations. However while debt has increased it is certainly not to a worrying amount with sales simultaneously improving at a suitable pace. We therefore rate the shares as a hold.
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