RBG Fall

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17th May '17 by matylda

47 comments 14210 reads

Can't find any reason for this drop today - Anybody shed any light? Seems to be quite a decent amount of selling at 200p.

Currently hold a long position and added a few on this, what is hopefully, small spike down.

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About the Author

Matylda

Premium Member

47 comments

jonno

19th May '17

Great post Bestace

I have a small holding bought at around 160p so although today's developments are clearly disappointing they are not a disaster. I appreciate Simoan's point of view and am tempted to add once the fall levels out with a view to exiting if an when the pendulum swings the other way. If and when? A dangerous game I know but there is overwhelming negativity surrounding the stock. Broker forecasts referred to by Paul Scott indicate 13p of earnings this year followed by 15.6p next.

Good luck

Jonno

Vader

19th May '17

Great post thanks, its good to see the numbers without the emotion after of such a massive drop.

With regards to Ed Crofts exelent article on surviving a profit warning this share is showing an exact pattern, steady falling prior to the warning then the massive drop. All evidence says to run for the hills at this point.

I feel the excessive reaction indicates that people no longer believe this is a growth company and therefore the current business model is no longer viable.

Its a hard one this one but my deer in the headlights have meant an additional 7% loss had I heeded Ed's warnings and sold as soon as possible.

PabloAguas

19th May '17

Son-in-law number 2 worked for them up until recently; he has been extremely bearish about them for some time. From memory, some of his concerns were to do with stock control and accounting practices.

ls2g08

19th May '17

This is an excerpt from Canaccord's piece on the profit warn which I thought you all might be interested in,

"Today's profit warning from Revolution Bars has been caused by (1) poor cost budgeting,(2) the closure of two key units for refurbishment (poor budgeting - is this a surprise to management?), and (3) the longer than expected time for the new Cuba sites to reach maturity (over confidence, poor budgeting). . The timing of the news has been promptedby a new (interim) finance director who joined at the start of the month. The stock is now in 'Spec Sit' and Recovery territory - we believe Revolution is still a good business with very strong FCF. However, pending further updates, we move to a HOLD (from Buy) given we see a risk of more warnings (old city adage 'bad news comes in threes')."

"We attribute 70% of the profit warning to poor budgeting rather than operational issues. If this proves to be right, then we view the profit warning as an irritating blip that can be sorted quickly. About half the hit for 2H17 is extra wages exacerbated by the knock-on effect of differentials and the maturing of the work force pushing extra staff up through the wage bands. Placing the blame on two closed bars for a contribution to the warning is crass, in our opinion. The trading concern centers on the Cuba brand where the new units are taking longer than anticipated to mature. Given that five of this year's six openings are Cubas and half the planned FY18 openings are Cubas, it's an issue. The combination of a slower build to maturity and high staffing levels in the early period accounts for the rest of the downgrade. If it's just a matter of time, then expectations can adjust; if it's more serious, then we would think the second leg for growth is in question. L4L sales are +1.7% YTD (interim 2.0%) with gross margins remaining as expected."

MichaelFBS

19th May '17

I personally just dont think the story or the numbers is as good as they make out. I had a conversation with Paul Scott on this back on March 23rd

http://www.stockopedia.com/content/small-cap-value-report-thu-23-mar-2017-nxt-rbg-spe-trcs-sis-wyg-sfe-177264/?comment=42#42

Though I accept that my understanding maybe have been poor and or muddled, I read the accounts and could not understand how they were accounting for CAPEX. So I sold my minute holding for a small loss.

Additionally I think in the current enviroment cocktails are the sort of thing that people seek to cut back on.

I still subscribe to the Mungerism of replacing EBITDA with the word bullshit when you read it.

I would take Carcosa's advice (comment 13) and sell and wait for the dust to settle.

JohnMM1969

19th May '17

According to 4-traders, the top 10 holders account for c36m shares (of the 50m total), and RBG has traded c5.5m shares today (per HL), which seems to imply that either a pretty big holder is dumping them, or a huge amount of the free float (those outside the top10) are trading them.

jonno

19th May '17

Hi Purpleski

I like your reference to Charlie Munger and also the Buffetism mentioned earlier about there being more than one cockroach in the kitchen and the findings in Ed's webinar on dealing with profit warnings.

After much agonising I have sold RBG from 3 portfolios I run for my family at about a 25% loss. If I had acted more decisively the loss may have been limited to 20%. The main reason for selling is a complete lack of confidence in the management and their ability to get the business back on line. To paraphrase Warren Buffet when poor management meets a great business it is the latter that suffers and while RBG is a good business, it certainly isn't great Wisdom in hindsight?

For those who continue to hold I hope that I am wrong.

At about 130p RBG is trading on a forward PE of 10 with a reasonable yield, but as has already been mentioned there are other more deserving businesses trading on similar metrics.

Onward and upward as they say.

Good luck to All

Jonno

MichaelFBS

19th May '17

Thanks Jonny. Sorry to hear about the loss.

Munger is well worth studying. There is a lot on YouTube and Charlie Munger the Complete Investor by Tren Griffin is excellent. My 10 year old (I have it on audio book) particularly likes his reference "...to starting out like a one legged man in an arse kicking contest...". Buffet gets most of the attention but there is much to be learned from Munger.

I got burned on Crawshaw (LON:CRAW) (another all be it different type of rollout) of roll out so I am very causious on roll outs now. I am not tempted by Patisserie Holdings (LON:CAKE) for example.

Personally if I had held I would have done the same as you and followed the knowledge imparted by Stockopedia's profit warnings study. Hard as that might have been.

Good luck with reinvesting the funds.

Michael

Andrew niven

19th May '17

I bought in today at just under 129.00 hoping the big drop today is a bit of a knee jerk .
Let's hope these shares bounce back , although have to say the U.K. Can be so fickle when it comes to bars not a share I would normally buy.They can be in fashion one day and out the next. I live abroad but have a home in Bournemouth and could not believe the number of new bars that have sprung up recently in the town .

JMichaelCharlton

20th May '17

The funny old thing is that it fell about 7% a couple of days before this, which makes me wonder "Who knew it was going to happen" ? Sounds like some dodgy dealing going on....

Rusty2

20th May '17

Some of that was put down to poor Mitchells & Butlers (LON:MAB) figures and they said "As previously announced, margins have been adversely impacted by increased costs, most notably from wage inflation, property costs and exchange rate movements." Sound familiar?

But you could be right.

Ups1de

20th May '17

I believe RBG is still a solid opportunity but top management grip on business has to be questioned :
- McQuater ( bean counter by trade) recently dismissed cost pressures citing their great 2year vodka deal( biggest seller) & majority of staff under 25 as positive mitigations
- they aborted a VERY expensive Edinburgh acquisition at the very last minute ( Brexit weekend)
With a skilled operator at the helm rather than someone who ' gives good deck' this company will thrive. Good brand, good locations, strong balance sheet, predictable demand. Large institutions that own most of the shares TAKE NOTE & fix.

runthejoules

22nd May '17

Who do you think would buy RBG, and why?

Trident

22nd May '17

Bit of a faux pas by the resigning FD perhaps? None of the subsidiary management accounts for the Revolution Group have been filed, and have a red flag at Co. House.

An admin error probably, but I could add up to a £3-4,000 fine from Co. House (£1K for each non filing). Sometimes it helps to see under the bonnet in subsidiary filings.

SumGame

22nd May '17

Any one know where the most recent sites opened are? For the matter where the next 2-3 are due to be opened?

My concern is that cheap rents may not have a catchment area of customers for this 'high-end' bar.

SG

Rusty2

22nd May '17

This gives some details of new sites: http://www.iii.co.uk/research/LSE:RBG/news/item/1931339/new-site-pipeline-update?context=LSE:RBG

So Liverpool, Reading and Stafford in 2016.

Torquay is the latest new site, opens next week.

SumGame

22nd May '17

Thanks Herbie,

For my reference from a quick google for population - maybe a some errors but gives an order of magnitude,

Reading 232K, Liverpool 467K (multiple bars),Stafford 133K, Cheltenham 116K Swansea 242K, Torquay 65K Wilmslow 30K

I wonder if this is an indication of the problem. Are there enough customers to support some of these locations? In fairness I did not look at all locations listed in the 'reservations drop down' on the revolution bar site just those I thought looked strange.

I think I will wait for more finance results before considering a purchase.

Regards
SG

Rusty2

22nd May '17

Yes I think you have a point about some locations such as Stafford and Wilmslow but it seems it's the 5 new Revolucion De Cubas sites that have dragged the profits down, these are in Liverpool Albert Dock and Reading, not sure about the other locations (Glasgow and Harrogate?). I think there are still many more suitable towns and cities, surprised only 5 in London. The Revolucion De Cubas sites are the main concern because of size and cost, if they don't work out then could be a big loss, whilst the Revolution bars are smaller and can be easily changed or sold off.

SumGame

22nd May '17

Herbie, Good information. I feel your observations support the 'wait and see' view that I have current have, no need to take a risk of more down side for limited upside. I could well be wrong, by being over cautious but that OK,

Regards,

SG

MichaelFBS

22nd May '17

Revolution Bars (LON:RBG) mentioned in Mark Brumby's newsletter this morning, which may be of interest

http://www.langtoncapital.co.uk/daily-notes/langton-capital-2017-05-22-rbg-over-supply-longer-term-trends-other/

Paul put me (via SCVR) on this a while back. It is excellent and should be required reading if you invest in the liesure, restaurant, pubs etc sector but TBH if you invest in stocks at all.

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RBG Fall

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About the Author

Matylda

47 comments

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