RFG shares have fallen 44 per cent since Friday, when the franchise systems business booked $138 million in impairment charges and announced plans to close between 160 and 200 outlets over the next 15 months. About one-third of these are stores owned and operated by RFG rather than franchisees.

'Closures to accelerate'

UBS believes these forecasts may be conservative and more closures will be necessary before RFG reaches a sustainable base.

​"We expect the closures to accelerate and go beyond those initially identified by RFG given the deterioration in underlying performance and pressure with the Michel's structure, in particular," Mr Rogers said.

"A successful repositioning of Michel's and deceleration of closures would be the most likely potential change to our view, but it is difficult to have confidence in this scenario after network sales fell 22 per cent in (the December-half)," he said,

Struggling food franchisor Retail Food Group may have to close more than 400 stores over the next two to three years and pull back on new store openings, according to a report by UBS. Patrick Commins

"We now forecast about 460 net outlet closures over the next 2.5 years (36 per cent closure of current domestic portfolio partially offset by about 100 net openings in the international division) and have lowered margins in each division to account for an expected change in the value split between RFG and franchisees."

The broker also believes RFG may struggle to comply with new banking covenants. Under one covenant, RFG must maintain earnings of $90 million in 2019, but UBS is forecasting EBITDA of $77 million.


UBS cut its recommendation from neutral to sell and slashed its share price target from $2.15 to 90¢, compared with Wednesday's close of $1.20.

RFG shares have plunged from more than $5 in 2017 after a Fairfax Media investigation revealed hundreds of franchisees were struggling to keep their businesses afloat due to rising costs, falling sales and lack of franchisor support.

Chief executive Andre Nell, who took the helm in 2016 from long-serving CEO Tony Alford, has acknowledged the company needs to do more to help franchisees and has pledged to spend an additional $1.5 million supporting franchisees in the field.

But analysts say it may not be enough.