Like for Like Sales Disappoint - Revolution Bars

Friday, Jan 20 2017 by


Revolution Bars (LON:RBG)

Share Price 204p                       Today -9.5p (-4.4%)

Market Cap €123.1 million         Bid/Offer 202p - 206p

Normal Market Size 2,000 shares

About the Company

Revolution bar operates 66 premium bars across the UK. The bars trade under the Revolution and Revolución de Cuba brand names. My back of the envelope calculations shows circa £1 million of turnover for each bar.  Pretty impressive turnover as business starts late morning for each bar and then trade continues until late at night as expected.

The company only rolled out four new Revolución de Cuba bars in H1 FY17 in Harrogate, Aberdeen, Reading and Glasgow.   Their fifth development this year in Southend on Sea is due to open in H2 which will bring the number of units to just 67.  

Challenges Ahead

(i) Results showed LFL sales only up 2% for H1 17.  Given the likely increases in running expenses including wages, drinks supply costs etc suggests that some margin pressure will occur in the 2nd half of the year.

(ii) The Revolution and Cuban bar concept may fade in fashion as the concept becomes tired and other theme bars move into that space. 

(ii) The group is only adding a half dozen extra bars a year so far. The actual percentage Increase in earnings will be getting smaller as part of a large number of existing bars.

(iv) A number of the best locations for the concept are already in place leaving more riskier and possibly less rewarding locations in the future to select. 


The initial IPO price in March 2015 needed to be reduced substantially to get it away at a £100 million market cap. The company was promoted as a go-go growth stock in many respects. The single digit unit openings each year suggests only a pedestrian rate of growth.

All of the £86 million of money raised in the IPO was used to cash out existing investors who sold their 86% holding in the company. The fundraising was at 200p in March 2015.  The share has ebb back and forth and effectively gone nowhere.

The company is dependent on a limited number of suppliers and distributors and the price they charge. In particular, one key service provider, provides all of the Group’s logistics, warehousing and distribution services in respect…

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All articles and comments are for general information only. No investment advice intended.

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Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

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61 Posts on this Thread show/hide all

ln1sof 21st Jan '17 2 of 61

As a roll-out, growth is coming from new venue openings so I was a little disappointed that Southend is the only opening in the pipeline any time soon, ie next 6 months. Looking back at past announcements, it looks like there's a very rough 6 months between being informed a new site is coming and it opening.

April last year Reading was revealed, then in July, Aberdeen, Harrogate and Glasgow, all of which opened in time for Christmas just past. So maybe the pipeline will become more apparent over the next couple of trading updates for pre-Christmas 2017 openings.

Until then, for me at least, where's the catalyst?


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rhomboid1 21st Jan '17 3 of 61

In reply to post #167926

Hi Paul

Revolution Bars (LON:RBG) are adept at securing good deals from landlords, in the bad old days lots of retailers and bars came undone as their accounting treatment of these incentives proved too aggressive. Nowadays accounting standards are much tighter but looking at RBG annual report I see no detail on this at all in the notes. In fact their depreciation charge was £6.21m in 2015 & £6.26m in 2016 in spite of the larger unit size? By comparison purchased property increased from £5.7 to £12.8m ?

In essence I believe landlords incentives go a long way to covering fitouts on new units but as refits are required the cost of these is borne by RBG, the frequency of refit is defined by the rate of LFL sales. Note 12 says the hurdle rate for impairment of a unit is in fact if it fails to reach a 2% annual increase in cashflow.

Additionally most units have 5 yr upwards only leases (2016 AR) so that too is going to require a good LFL performance to offset? Also the ongoing uplift in rateable values is going to be a drag?

Finally they paid bank interest of £129k in the year , so there must be some hefty seasonality (quarter days?) to their net cash position.

I'd be interested if anyone can see where I've missed any more detailed explanation around the treatment of landlord incentives.


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paraic84 21st Jan '17 5 of 61

Out of interest would people necessarily expect L4L sales to be dramatically higher for this kind of business? In my opinion modern bars already charge quite high amounts on drinks and food so the only way to increase sales would be to increase consumption (which might be tricky as Brits already don't hold back on drinking!) or footfall. Most fashionable bars tend to be rammed on Friday and Saturday nights so getting more customers in might also be tricky. In my view I wouldn't expect L4L sales to be much higher than 0-5% in the current economic cycle.

Like Paul I like the business because of its self-funding rollout and I think this type of bar is becoming an important part of youngish Brits' social lives. I think the cuba bar format appeals to a different more middle-class demographic than the revolution bars which, in my opinion, are a bit more Essex-y (I can say this having been born in Essex). So I think there is good growth potential in the revolucion de cuba format and they probably aren't entirely competing with each other. My mates wouldn't go to a revolution bar but would be happy to go to the cuba one.

My main concern with this share is whether the margins are maintainable in what is an increasingly competitive industry. I also think Dearg is correct to question whether it might simply fall out of fashion but I think we're quite far off that yet. I am not expecting stellar growth here but I think it has short-term upside of 20-30%.

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rhomboid1 21st Jan '17 6 of 61

If a formula is good I'd expect word of mouth to drive LfL quite strongly as customers bring in friends and they in turn spread the word to their friends. If it is falling YoY and the chain is growing then that to me requires an explanation, here it is complicated by 2 formats, one of which Revolution is being revamped and the other is being rolled out as a new brand. I'm not tempted as LFL at 2% is too low to cover increasing costs and provide a margin of safety unless there is something else I've missed.

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bestace 21st Jan '17 7 of 61

In reply to post #167941

I don't see anything untoward in the accounts on lease incentives. The key bit is in the notes on page 58: "Lease incentives received are recognised in the income statement as an integral part of the total lease expense"

Landlord incentives are netted off against the cost of the rent and the benefit is spread over the initial 5-year term of the lease, all of which I believe is standard accounting practice under current rules. So fixed assets and depreciation charges are not affected by the lease incentives.

On the interest charge, this is said on page 21: "The Group utilises a £5 million revolving credit facility to provide liquidity and to manage its seasonal cash flows." Presumably they could open fewer new sites so as not to resort to using this facility, but bank interest of £129k strikes me as being pretty minimal in the context of cash and profits generated from the opening of additional sites.

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rhomboid1 21st Jan '17 8 of 61

Hi Bestace

Thanks for the response, my issue is that if key money is received and that is used for an initial refit then the cost is spread over the initial lease which as you say is fine if the lease term will see out the lifecycle of the fitout. Which in my experience it does as upscale bars require major refurbishment and or format changes every 5 yrs or so to keep the LFL growth in line with underlying cost inflation especially as the leases are mainly upwards only resets.

So what this treatment doesn't do is help in understanding the likely impact of refurb Capex to keep LFL growth and cashflow increasing at more than the 2% required to avoid an impairment issue..after that initial 5 years have elapsed

On the interest cost that implies that there is not a net cash position on average no? More likely c £2m debt at normal commercial overdraft terms?


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bestace 21st Jan '17 9 of 61

In reply to post #167974

I think the listing prospectus is the best source of information on those issues. From this, we are told that:

  • they undertook a comprehensive refurbishment programme over 2013 and 2014 which covered two thirds of the estate and that each site costs around £200k to refurbish
  • Each bar typically loses one week's worth of trade whilst undergoing a major refurb (a few sites lose up to three weeks)
  • The larger sites generate average annual turnover and EBITDA of £3.7m and £800k respectively and the smaller sites generate £1.7m and £300k respectively. The EBITDA figures are apparently one of the highest for any UK national bar chain.
  • Rents are consistently less than 9% of each bar's turnover, which works out at around £330k for a larger site and £153k for a smaller site (just by multiplying the turnover figures in the bullet point above by 9%)

To me, refurb capex spend of £200k every 5 years doesn't seem overly onerous in the context of those EBITDA numbers. Bear in mind also that refurb capex is depreciated over 5 to 10 years.

On rent increases, if LFL sales at a larger site increase by 2%, that's an increase of £74k, but if the rent charge increases by say 5%, that's an increase of £17k. For a smaller site the corresponding figures are an increase in the top line of £34k and an increase in rent of £8k.

On the interest costs, some of this will be for non-utilisation charges. I can't see they have disclosed what rates they are paying on drawn or undrawn balances, but we can work out that the blended rate for the year (0.129/5) was 2.58%. What we  do know is that despite being in a net positive cash position in both 2015 and 2016, they were using £0.5m of the £5m facility on 30 June 2016 despite having £2.8m of cash. I suppose it is possible they were running overdrawn for most of the year and then window dressing the accounts to show positive net cash at the year end dates, but that isn't really born out in the cash flow statement and I would have thought interest charges would be a lot higher if this was the case.

Do check all my numbers, it's possible I've messed up somewhere!

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herbie47 21st Jan '17 10 of 61

One thought is how will the new business rates from April 2017 impact Revolution Bars (LON:RBG), I hear businesses in prime locations are getting hammered with rates going up 2-3 times, I presume most of RGBs sites are in prime locations?

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rhomboid1 21st Jan '17 11 of 61

Hi Bestace

Plenty of detail, but only one matters..

Slide 12 says new site fitouts cost from £0.9m to £1.8m for the new formats, so is this how much refurb/reformat Capex is required after 5 yrs or is it the £200k for the old Revolution format?

My money is on the bigger number being nearer the mark, rent costs are unlikely to only rise by 5% as you've got at least 20% of the landlords incentive amortised over the initial term as uplift before you start talking general uplift on top.

On interest payments if I held I'd ask the question of the company because it looks slightly anomalous.


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bestace 21st Jan '17 12 of 61

In reply to post #167992

Not sure I agree. Referring back to the prospectus again, it states initial fit out costs of between £0.9m to £1.7m (presumably the figures you quote from the interims are an update of these figures) and that subsequent refurb costs are £200k.

There will be all manner of costs that have to be incurred on the initial fit outs that are not relevant for the later refurbs - planning fees, architects fees, legal fees, building & construction etc. just to name a few. Perhaps the answer is somewhere in between, but I would bet it lies nearer the £200k figure than the £0.9 - £1.7m figure.

On rent, plug your own figures in as you wish, but surely if you take a quinquennial 20% rent uplift you would also have to compound the 2% LFL sales increase over 5 years (i.e. 10.4%) to be comparing apples and oranges?

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rhomboid1 21st Jan '17 13 of 61

I agree that the refurb number is lower than the initial fit out , but all the impressive results are from the new Rev 2 & Revolucion da Cuba sites that are far more high spec/cost than the old Revolution format that the listing document references in the main.

Iirc landlord incentives on one site referenced included rent free for 18 months, reverse that out after 5 years and lease costs have risen by c30% p.a. before uplift? On top of that is the refurb due at that point and the rateable value increase.

All I'm suggesting is that the blend of old and new formats/sites leaves a lot of room for obfuscation and 2% LfL looks a tad light for comfort ..

Good luck anyhow

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Dearg Doom 2nd Mar '17 14 of 61

Revolution Bars (LON:RBG)

Share Price 233p (up 10.5% today)

Revolution Bar Group is an ideal stock for small investors to buy as part of a wider portfolio.  The group has operated bars in a very successful format for a few years.    The company is well managed, making profits, with no debt, paying dividends and small scale expansion plans in place.  The share price is also on a reasonable p/e ratio. Best of all investors have more of an understanding of their business model compared to many other companies they might hold.  What is there not to like?

Interim Results for y/e December

  • Revenue +12.7% +£7.5m
  • LFL sales +2.0%
  • Gross margin maintained year on year
  • PBT conversion 8.2%
  •  EPS up +7.1%
  • Interim dividend of 1.65 pence per share +10.0%

Points to Consider

I doubt if like for like sales can be increased much further and they may have reached a plateau. Business is concentrated around a set  few days of the week.  People choose when convenient for themselves and friends to go out, so not much change here in the future.

To maintain profits the company will need the new profit generated from 5 or 6 bars added annually. These profits will help the company to keep pace with the group’s overall wages increases, rateable valuation adjustments, and future multiple rent reviews. Maybe some future cuts in the large capital maintenance expenditure each year may help push profits upwards when needed.

I do not see this share as a growth stock, but rather as a future dividend yield stock with a limit to the number of successful units that can be operated within the UK. Obviously, the potential to grow internationally is an option, but without that option, the growth potential is limited.

The share price performance has been underperforming of late, but today’s movement is certainly impressive if it holds up for a few days. Previously, there always seems to be plenty of large sellers around satisfying smaller investors’ demands. Staying above 230p level would show buyers in the ascendency.  The company’s future plans are well documented and should be priced into the stock price already. The company still has some minor execution risk on its plans and that its bars will continue to remain popular with its client base. 

What makes me slightly uncomfortable is that when the company was a growth company, the original shareholders were happy to hold.  When that growth began to slow, they sold out their holdings and yet priced the company as a growth stock at IPO time. 

The new institutional shareholders, who bought in at the IPO, now realise that the future growth in earnings per share is now going to be pretty much pedestrian going forward.  Despite the relative expensiveness of the stock market, these same institutions are happy to continue to offload an apparent cheap stock.  Obviously the institutional own spreadsheets calculations of the future profitability must be more flat lined than new investors’ hopes.

Considering the above, I have decided to take advantage of the recent rise and sell my entire holdings.   A future 15- 20% drift back down in the share price, in the absence of negative news will draw me back in.

Share price movements and in particular the timing of sales makes fools of investors on a regular basis.



Dearg Doom

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gus 1065 2nd Mar '17 15 of 61

In reply to post #173933

Hi Dearg,

Good to read a counter case to Paul's strong endorsement of Revolution Bars (LON:RBG) earlier today. Quick question if I may? You comment that the company is priced as a "growth stock", but even after today's 8% rise the p/e of about 12x is pretty undemanding in my opinion and certainly less punchy than some of its competitors (e.g. Restaurant (LON:RTN) which is currently on about 15x and seems to have quite a few more challenges facing its estate and brands). I can see why the "bulls' story" portrays this as a growth stock but why do you think the current price, earnings etc., suggest this is currently overdone?



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Dearg Doom 2nd Mar '17 16 of 61

In reply to post #173969

Hi Gus,

A growth stock for me is one that can increase earnings per share on a consistent basis for the next few years at 10%+.  Share price oscillations are interesting in the meantime, but the share price eventually finds a level which reflects the company's earning growth potential. 

Yesterday, the market was valuing RBG stock as a flat earnings stock with plenty of ability to pay dividends in the future.  Today, given the same information, the stock is a growth stock. Therefore, the p/e ratio for the share is being adjusted upwards in a quick swoop. But what measurement of growth are we talking about?

Yes, there will be growth in a number of units and in sales revenue.  Will next year sales revenue keep up in percentage terms with the inflation costs of the business? I have my doubts. The company may well struggle to keep margins at the top end in all places, as the newness factor wears off a bit.  I feel much of the best from each unit is already in place.  I expect a marginal decrease in profitability in some units, which can only be offset against a larger number of units being opened each year.  Earnings will remain pretty static with a few pence per share up here and there each year.

I had expected that when £1 million had been spent on each new outlet that capital maintenance expenditure would be pretty much at an end.  Someone with a calculator will work out this year's  capital maintenance expenditure cost per finished outlet.  Apparently, a few million pound  last year was necessary to keep even the present modern facilities refreshed and up to date. 

Granted there is the tail wind of additional units, but these will not be large enough set against the myriad of headwinds that are known and unknown at this stage.  RBG will most likely be a dividend machine, paying an increasing dividend out on static profits.  I like these type of shares, normally.   However, when the growth investors eventually are disappointed, then the destruction in capital value is always gruesome.

Paul Scott wrote an excellent summation of the company prospects.  Paul is normally right.   My viewpoint suggests the reason why the stock price was where it was and why it might return later to that lower price.  If the world has changed for Revolution Bar Group, then investors should get on-board.  Trouble souls like myself will watch from the sidelines for a bit.


Dearg Doom.

PS (I feel this March may be a treacherous month. I'm a net seller.)

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paraic84 10th Mar '17 17 of 61

I know a few stockopedia readers have been sampling Revolution Bars (LON:RBG) goods themselves recently. Last Tuesday I went to the Revolution Bar by Clapham Junction station with an investor friend and thought I'd share my experience. I deliberately targeted this one because even on Tuesday night business should be OK in London and it is an older branch (and OK it is near me!).

Key points:
- I thought the decor was very well maintained. It was nice and light, and felt very modern and up-to-date.
- On a Tuesday there was still a decent number of customers although obviously a lot quieter than you'd expect for a Friday or Saturday night
- Bar staff were very helpful. A customer spilt a drink on themselves (not me I should add) and two members of staff rushed over to help him!
- The drinks and the food were very expensive. Almost absurdly because you don't get much drink or much actual food!!! I don't know how this plays outside of middle-class cities and towns unless they vary their pricing - anyone know? This is good for margins although it does mean profits could be hit quite hard in a recession. It could be a problem if a competitor came along and competed on price but at the moment most of the competitors I see are also charging high prices.
- Food was OK I thought but not great quality. Although you can't really tell the difference when you're tipsy. My friend thought it was diabolical. £4 for a mac and cheese smaller than your hand...
- I think the business occupies a sort-of niche in the market. It is the sort of place you'd go on a fun night out - they have DJs some nights - but didn't want to go clubbing. So it isn't quite as informal as say a lower-key bar or pub. I see it as competing more with independents and maybe All-Bar-One but less so with pubs.
- The drinks list is clearly targeted at people in their twenties and ladies! Some of the cocktails are not very manly! (A missed opportunity perhaps?). That said all the cocktails I tried were very nice although my judgement was impaired towards the end of the evening.
- As someone who does go out to bars like this on a regular basis I think it does appeal to 20/30 somethings who want to spend their money on a night out. I think there is more growth potential from the Revolucion de Cuba format which looks like it appeals more to people in their late twenties/early thirties and who have more disposable income. There are only a handful of those at present.
- The main competition I see is from independents - e.g. see Simmons Bar in London. The independents tend to have less floor space so I do wonder whether Revolution Bars (LON:RBG) has too much estate. During a recession the bars might look very quiet! On the other hand, maybe this brings more income in on Fri and Sat nights as you can get more people through the doors?

This says nothing about whether it makes sense to buy it at the current SP. I've posted elsewhere about that as have others on this thread.

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extrader 10th Mar '17 18 of 61

Hi paraic84,

Your experience/impressions of RBG Clapham are similar to my own, reported above/earlier.

I may try the RBG Revolucion de Cuba in N'ham this weekend with some relatives. I meet the 'disposable income' criterion, but sadly (or maybe that should be 'thankfully' ? I think the young have it pretty tough these days) not the age group....


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bestace 10th Mar '17 19 of 61

In reply to post #174960

Thanks for the feedback paraic. From your last paragraph, does that mean your view on the investment case is unchanged by your on site research?

On floor space, I'm not sure I'd see RBG as having too much of it; within the RBG estate the larger sites have a much higher return on capital than the smaller sites, so going larger helps to underpin the ability to roll out more sites without taking on debt, thereby allowing operational gearing to take effect. Having low rents relative to unit size helps with this.

I agree that pricing pressures in a recession are a key risk. Overpriced product with undersized servings smacks of 'entitlement' and I think they will struggle to maintain this in a downturn.

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hayashi22 10th Mar '17 20 of 61

In reply to post #174960

Just reading your review. Makes me wonder why you didn't go to the Falcon pub which can't be more than 50 metres away and have a nice real ale and one of their meals (the portions are big)-probably for a whole less money!

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herbie47 10th Mar '17 21 of 61

In reply to post #174984

It's a different market, I personally would choose the Falcon but I'm not 20/30 something. Google reviews for Falcon 3.7 and for Revolution 3.2. Interestingly peak time for Revolution is midnight to 1am, Falcon is 10-11pm. So that does support the view that is a late night venue maybe after a few cheaper drinks elsewhere. I do have a small holding, I have some concerns and any sign of recession I will be out sharp.

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