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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. 

Concerns

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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