I rarely consider new IPO's, and by rarely I mean practically never. However Cake Box Holdings (CBOX) came to market on 27th June 2018 and sparked an interest so I thought I would take a further look.

What I found somewhat unusual is that no capital was raised in bringing CBOX to market. It was supposedly brought to market to provide a partial exit for the founders and provide equity incentives for staff and to boost its public profile. Sounds all very laudable but also sounds like the founders are not particularly greedy which makes for an interesting opportunity for others, I think.

The first day of trading (June 27th) finished up 19% at 127p (IPO price 108p) giving a market cap of £51m

Cake Box is a franchise operation of 91 shops which sells egg-free cakes aimed at those people whose allergies or religious requirements prevent them from eating most cakes.

The company makes their recurring income from the supply of sponge and other cake supplies (78%) and non-repeat items e.g. franchise fees, store fit outs, equipment (22%) to its franchise stores.

The admission document indicates that new prospective franchisee's are piling in the door every day but only eight a month get to the final reviews. They seem to have been aiming at opening about 2 new shops per month and they have a stated aim of 250 shops but no timescales are given but you are left to assume that will take years

They also claim that mature shop LFL sales are increasing, somewhat significantly at 15% and each of their 91 shops (except one) is profitable.

The balance sheet has a NAV of 4.6m (with no intangibles)

With 40m, shares in issue at a sp of 127p and an EPS of 7p that gives a P/E of 18 meaning that the market is expecting a reasonable amount of growth in the next couple of years and beyond.

New new stores are funded by franchisees so CBOX takes practically no risk in that respect.

That growth has to come from two primarly sources, more franchise operations and more profit from each shop. This is where perhaps the risk is for an investor.

The number of store openings each year has to be meaningful, if they…

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