Retail Food Group Ltd [ASX:RFG] shares bounced back 32% after two days of freefall, closing at $2.15 yesterday. This is despite RFG’s downgrade of its profit projections, which contributed to the recent share price drop.
What led to the possible class action against RFG?
Bannister Law is investigating whether RFG, in downgrading its initial market projections, had breached the Corporations Act. RFG had previously forecasted growth in its underlying net profit of 6%. But RFG then downgraded its first-half statutory net profit by 34% to $22 million on Tuesday.
Bannister Law is specifically looking into whether RFG:
‘Had reasonable grounds for making the earnings guidance announcements on 29 August, 30 November and 7 December 2017 having regard to the allegedly flawed nature of the RFG franchise model, reported complaints by franchisees about high fees and a large number of stores under the RPG banner being put up for sale’ and whether RFG ‘Ought to have corrected the earnings guidance earlier than 19 December 2017.’
Bannister Law said it may launch a class action for shareholders who lost money in the share price fall between 29 August and 19 December if it found that RFG had broken the Corporations Act.
What was RFG’s response?
The ASX also questioned whether RFG had given its revised market forecast soon enough. RFG replied that its profit downgrade of 34% was not a revised figure, since its previous forecasts had only been in regard to its underlying profit for the full year.
RFG also stated that the firm regarded its disclosure obligations ‘very seriously’ and that ‘all prior statements regarding earnings guidance have been made in compliance with these obligations’.
Stockbroking firm Morgans, believes RFG shares have fallen below their true value due to overselling. Buyers looking to cash in on the lower price could be behind the recent share price rise, but it’s some consolation after a bad week for RFG.
Junior Analyst, Markets & Money
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