Small Cap Value Report (Fri 2 Mar 2018) - Snow, RBG, G4M, PCF, IHP, HVN | Graham Neary

2nd Mar '18 by Graham Neary

75 comments 22475 reads

Good morning! Thanks for the suggestions so far.

Stocks on my radar are as follows:

Revolution Bars (LON:RBG) - interim results
Gear4Music (LON:G4M) - trading update
PCF (LON:PCF) - AGM trading statement
IntegraFin Holdings (LON:IHP) - admission to Official List
Harvey Nash (LON:HVN) - trading update

This list is subject to change!

Cheers,

Graham

Snow - a quick word on the brutal weather conditions, which have caused travel chaos and business disruption across the UK & Ireland.

It has personally affected me, as I was supposed to be flying to London today instead of writing this report! But I got a text message from Ryanair Holdings (LON:RYA) late on Wednesday evening, informing me that my flight would not be going ahead.

It would be risky business to trade shares based on short-term weather patterns, but I would guess this is going to have an effect on many companies - insurers and retailers spring to mind.

Anyway - take care, wherever you are!

Revolution Bars (LON:RBG)

Share price: 163p (-4%)
No. of shares: 50 million
Market cap: £81.5 million

Interim Results

Many of you have already left insightful comments in the thread below, discussing this premium bar chain.

My views on it are as follows:

Like-for-like sales: I am ok with the company adjusting LFLs to include New Year's Eve, to get LFLs of +1.9% instead of +0.4%. I discussed this at the trading update last month.

New sites: site opening is on track. Four new sites opened, including three just before Christmas. Six planned for the full year, taking the estate to a total of 74.

Adjusted Operating Profit: this is where it gets interesting, as the company claims to have achieved an adjusted operating profit of £6 million, versus a reported operating loss of £3.7 million.

This is what the "exceptional" items look like. You'll notice that there were £2.3 million of exceptional items during the entire previous year.

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gus 1065

2nd Mar '18

£G4M (Gear4Music) trading update and Revolution Bars (LON:RBG) interims our this morning likely to attract a fair bit of attention.

https://www.investegate.co.uk/revolution-bars--rbg-/rns/interim-results/201803020700054768G/

https://www.investegate.co.uk/gear4music--g4m-/rns/trading-update/201803020700034632G/

Revolution Bars (LON:RBG) look steady (small LFL growth) but not spectacular. Given the potential for distraction by the two bids arguably a reasonable result. G4M showing strong growth, especially overseas, but profitability lagging due to incurrence of expansion related costs. Glass half full or half empty for both of them depending on your frame of mind.

Also note that the directors of Plus500 (LON:PLUS) have sold about 1/3 of their remaining shares (c.7m/£80m) via a placement at £11 per share. Not a holder .... but if I was I’d be wary they know something that I don’t.

https://www.investegate.co.uk/plus500-ltd--plus-/rns/result-of-placing/201803020700044721G/

Gus.

MrContrarian

My morning smallcap tweet:

Revolution Bars (LON:RBG), £G4M

Revolution Bars (RBG) H1 - 26 weeks to 30 December (why the change from 6 months to 31 Dec?). Rev up 11%, LFL up 0.4%, EPS -6.8p (FY17 Restated 8.5p). Adj EPS 9.4p (FY17 Restated 10.0p). LFL adjusted to remove the benefit of New Year's Eve trading 1.9%. Outlook positive but vague. [Edit] Last 7 weeks excluding New Year's Eve LFL down 2%. "We believe that like-for-like sales reduction is temporary and that growth will return as footfall naturally improves as customers recover from the Christmas period, with the better weather and in particular the bank holiday weekends when the business traditionally see stronger sales." That's BS. How will the seasonal growth improve LFL?
Gear4music (G4M) FY trading: rev up 43%. EBITDA in H2 will be up but "s a result of the investments we have made during the year into our customer proposition, infrastructure, staff, systems and marketing, we expect EBITDA for the full financial year ended 28 February 2018 to be in line with our FY17 result." Don't state if this is in line. F/C is for an 16% fall in adj EPS.

Albertos

Revolution Bars (LON:RBG) Seem to have to adjust their figures more and more to give a positive spin - I'd appreciate your analysis.

Phil

doublelutz

RBG - if their accounting system can only cope with complete weeks they should have their period ends at less busy dates such as end of January and July.

mercury61

Off topic: Uk's Fca - ‍Beaufort Securities Limited (Bsl) And Beaufort Asset Clearing Services Limited (Bacsl) Are Placed Into Insolvency.
Thoughts with all those effected.

Wol

Another request for £G4M. I find their trading update very difficult to interpret. If EBITDA for y/e 28/02/18 is inline with 2017, what does that mean for real profits? And if EBITDA (or even worse, adjusted EBITDA) accelerates this year will real profits go up too?
The positive view - they have done their major investment, users and revenues are growing very nicely, they have built their economic moat, super profits will follow
The cautious view - growing revenues and EBITDA is the easy bit. But can they turn that into real cashflow and real profits?
I have been watching this one from the sidelines. Looking forward to hearing your thoughts Graham on whether it is safe yet to jump into the water..

InvestedGeordie

Morning Graham,

If you do have time, and the interest, I'd appreciate your views on XP Power (LON:XPP) final results, issued yesterday.

https://www.investegate.co.uk/xp-power-ltd--xpp-/prn/final-results/20180301070000PBAFE/

Thanks,

IG

mammyoko

Revolution Bars (LON:RBG) - exceptional item onerous lease charges of £5,637k - this is a provision for rent on loss-making sites. So an acceleration of losses that may or may not be incurred. if the sites become profitable the provision will be released. So, to the extent that the rental costs are being recognised upfront, future profits will be enhanced. The worry here is that Revolution Bars (LON:RBG) are incapable of accurately assessing whether their sites make a real profit and, consequently, they may be making poor investment decisions.

Having to restate already restated figures doesn't inspire much confidence in the finance team's ability. However, the question is whether the poor accounting is a consequence of systems or people. It would be more concerning if it was the former as the latter can be more easily replaced. I have the feeling that Mike Foster is more capable (less aggressive?)than his predecessor and that this is the final round of adjustments being cleared out rather than a deterioration ion trading causing previously profitable sites to become loss-making.

Also interested in the AGM statement from Impax Asset Management (LON:IPX) .

https://www.impaxam.com/sites/default/files/AGM_2018_web.pdf

You have reviewed Impax Asset Management (LON:IPX) before. Everything in the statement looks good. My only worry would be that profits follow assets under management (AUM). A fall in AUM driven by falls in the market could have a magnified effect on Impax’s profitability
I hold.

Boon

Revolution Bars (LON:RBG) definitely one of the more complicated accounts. Why can't they choose a HY end date that isn't interfered by key trading periods? Like HY ending Feb?

Also management have been sneaky by trying to hide the onerous lease exceptional charges (of which is it £5m+) within the £9m of exceptional charges, instead trying to hide behind the aborted takeover charges (only £2m).

My calculations of the newly opened sites (in FY2017) is that they're only making £6.3k EBITDA a week in H1, compared to £7.2k EBITDA for (mature) sites existing before Jan 2017. So are their new sites making less than existing? That would call into question their rollout prospects. In the outlook statement, however, they identified that 5 upcoming sites are going to be larger than usual.

I like that their operating cashflow of 7.1m (and this is after exceptional items) is higher than what is spent on capex for new sites, so at their current rollout rate (6 sites) its a self-funding rollout.

Any other thoughts on £RBG?

GrahamF

How well should Revolution Bars (LON:RBG) group be doing? With the seasonality of the bar trade and companies having different reporting dates it is hard to draw comparisons. However, I think we should try (as long as we can find companies that are reasonably comparable to use) as it’s only this way that we can tell if they are a strong company relative to their peer group or not.

One of the closet competitors looks to be Be At One Ltd.

http://barmagazine.co.uk/be-at-one-bars-report-record-trading-over-festive-period/

They are reporting like for like year to date revenue at +8.1%. (Their year end is end March so this +8.1% is covering 3 quarters).

Against that RGB doesn’t look to be growing its LFL very much, however perhaps Be At One are buying the business.

(I hold no position in these companies).

daveinthelakes

Revolution Bars (LON:RBG) - the onerous lease charge looks somewhat dubious to me.

"Following a more robust analysis of the trading performance of the Group's bars, a small number have been identified as requiring an onerous lease provision, based on projected bar contribution and rental commitments. "

Just because they are not making a profit on a unit does not mean per se it is over rented. It could be it needs a big cap ex refit or it is the wrong size or town for their operation. Another operator may make a profit from the same venue.

There will be other sites where they have done a cracking deal at a low rent and are making greater profits than the norm. Are they going to add in an exceptional surplus on the balance sheet for these?

This looks like a kitchen sink job, possibly to assist in future LTIP's and/or fend off bidders by projecting a much improved future performance when compared to the current base.

Dan7710

Question - has anyone used Research Tree? Thoughts? Can I cancel before the trial period expires if I don't like the platform?

rmillaree

Ref RBG - very messy financials, this may perhaps offer a buying opportunity if some sell up or get put off buying in the sort term.

Is it acceptable to blame a takeover approach for poor trading in a bar group - F no, its admin disgrace top bods not remaining fully focused on ensuring the basics are done right.

If i was a holder i would be very annoyed at the sloppy approach taken with regard to the compilation of the accounts figures, how is anyone meant to fully absorb things like the silly extra moths depreciation. Head office costs not being fully allocated sounds like a typical pimping the books thing. Oh and the upshot of the adjustments now is that future earnings will be higher due to a future lower depreciation charge - hmmmm thats just coincidence that the kitchen sinking will benefit the next clean set of figures !!

Having said all of the above there is a semi reasonable business there (i think) but i am not tempted to buy at the current price now.

Graham Neary

Hi IG, re:XP Power (LON:XPP), I might circle back to that one later. Cheers.

Small Cap Value Report (Fri 2 Mar 2018) - Snow, RBG, G4M, PCF, IHP, HVN

Revolution Bars (LON:RBG)

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Graham Neary

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