Small Cap Value Report (Thu 14 Mar 2019) - RBG, DEB, IPEL, DFS, SDRY

Thursday, Mar 14 2019 by

Good evening/morning, it's Paul here.

Revolution Bars

Here are my overdue notes from a recent meeting with management of Revolution Bars (LON:RBG) (in which I hold a long position). The meeting covered the points in the recent interim statement, with a bit more detail, and also some Q&A. It was also a get-to-know-you session with the new CEO, Rob Pitcher, who started in late June 2018.

The original reason I invested in RBG, several years ago, was that it was a self-funding roll-out of highly cash-generative bars, combined with takeover potential. Sure enough, we got a 203p cash bid in 2017 from Stonegate, which bizarrely for a recommended offer, was turned down by shareholders at the last minute. I can't remember that ever happening before, so it was actually a rational (but ultimately incorrect) opinion to wait for either the 203p cash bid to finalise, or a higher competing bid to come in. Sometimes things don't pan out as we hope.

Since then, the share price has collapsed, to only 63p - suggesting that the stock market thinks that the business is going down the pan. Therefore, in assessing this share today, it is a given that performance has disappointed. The question now is simply whether the share price has overshot on the downside, and what upside there might be from here if a turnaround takes place?

Revolution Bars (LON:RBG)

Share price: 63.5p
No. shares: 50.0m
Market cap: £31.8m

Interim results 

Oh no, what's gone wrong now? As management admitted, "we've just hit the market with 4 negatives";

1) Dividends suspended - widely expected (I suggested that it might be wise to suspend the divis, here in Oct 2018). Also, broker notes had floated the idea that divis might be suspended, due to heavy expansionary capex on new sites.

So for anyone paying attention, the divis being suspended should not have come as a surprise at all. My only complaint here is that management could have been more savvy, and slashed the divis to something nominal, say 0.1p per share. That would have suited some institutions, which are mandated to only hold dividend-paying shares.

Management are clear that the company will return to the dividend list in the not-too-distant future - so this should be…

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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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Debenhams plc is a United Kingdom-based company, which is engaged in multi-channel business. The Company’s brand trades through approximately 240 stores in 27 countries. The Company's segments are UK and International. The UK segment consists of stores in the United Kingdom and online sales to the United Kingdom addresses. The International segment consists of international franchise stores, the Company-owned stores in Denmark and the Republic of Ireland, and online sales to addresses outside the United Kingdom. The Company's stores trade under the name of Debenhams other than the Danish stores, which operate under the Magasin du Nord banner. Its stores offer customers a range of services, including restaurants and cafes, personal shopping assistance, hairdressing and beauty treatments, nail bars and wedding or celebration gift services. Its Debenhams Direct ( offers a range of products and services for online customers. more »

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Impellam Group plc is a holding company that provides strategic planning and management services to its portfolio of subsidiaries. It is engaged in the provision of staffing solutions, human capital management and outsourced people-related services in the United Kingdom, Ireland, North America, mainland Europe, Australasia, New Zealand, Singapore and the Middle East. It’s segments include Managed Services-UK, Europe and Australasia; Specialist Staffing-UK, Europe and Australasia; Managed Services-North America, and Specialist Staffing-North America. It operates various supply models within its Managed Service Programs (MSP), including Neutral vendor, Master vendor and Hybrid vendor. It also offers Recruitment Process Outsourcing, which refers to the outsourcing of permanent, temporary and contract recruitment. It offers staffing services for specialties, such as Healthcare, Legal, Engineering and technical, Construction, Catering, Driving, Office and Industrial. more »

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69 Comments on this Article show/hide all

Paul Scott 14th Mar 30 of 69

In reply to post #457898

Hi Zipmanpeter,

I think that's an excellent summary of Revolution Bars (LON:RBG) - I agree with you.

One thing I forgot to mention, is that we discussed the need to attract new buyers, so that more liquidity is created to enable stale bulls to exit. Management agree with that, hence why they brought in FinnCap, to engage with more investors, especially private investors.

My view is that the numbers do the talking, and this is a simple turnaround - revamp the run-down sites, improve operational standards across the board, and sales will go up again. Then the share price looks after itself, once improved trading is reported.

They have lovely soft comparatives for the next year, so a return to positive LFLs looks highly likely to me, given the significant number of bars being refurbished.

Once improved trading does come through, then people will have to pay more to buy the shares. Hence why I'm happy to buy now, ahead of the curve. That's based on an assumption that management executes well, which is not guaranteed of course. I'm backing Rob Pitcher, on the basis that he strikes me as a man who's rolled up his sleeves, and is getting on with the fairly basic things needed to improve performance. None of this is rocket science, it's a simple turnaround. That should be reflected in a usefully higher share price this time next year, in my view.

Regards, Paul.

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Trident 14th Mar 31 of 69


Unless I have got this wrong, I like the fact the Company seeks to cover option awards by holding a fund of shares in its Employee Share Benefit scheme. If that continues should not mean dilution of existing shareholders, if/when these options are issued after exercise.

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Real81 14th Mar 32 of 69

Anyone have any thoughts on Manx Telecom (LON:MANX) (LON:MANX)? Takeover offer?

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davidjhill 14th Mar 33 of 69

In reply to post #457938

Yes. I am a holder of Manx Telecom (LON:MANX) and view takeover as reasonable value. Have held for about 4 years and with dividends they have achieved a compound return of circa 20% p/a. Their data centres and hearing impaired product could have pushed the share price higher but debt has crept up so don't have too many complaints. My target had been 220-225p and I am getting 215p so happy to recycle capital here.

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doublelutz 14th Mar 34 of 69

In reply to post #457938

Considering the 215p you will receive includes a dividend that you would get anyway of 7.9p it doesn't seem very generous particular if the new products they have spoken about have good prospects. I had not been expecting the share price to go much above 200p this year but had been perfectly happy to hold for the dividend. It looks like it is a done deal and I will have to look elsewhere for a similar dividend.

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rivaldo 14th Mar 35 of 69

In reply to post #457783

Agreed fredericktug, very good results from Capital Drilling (LON:CAPD) today, and an "encouraging" outlook for this year. In particular they say "we anticipate a further improvement in profitability in 2019". In summary:
- around 4.3p historic EPS
- revenues above the top end of prior guidance and EBITDA well above forecasts
- 2.1c total dividend
- almost $11m net cash
- rising ARPU in H2'18
- encouraging comment about "optimism for further contract wins over the year ahead"
- profitability underpinned by long-term contracts

CAPD's joint brokers Tamesis Partners (mining company specialists) have their research available for free. Here's today's note - they have a 91p valuation, against the current 53.5p share price. They see 7c EPS this year, with the cash pile rising to a mighty $31m by the year end (against a current £73m m/cap).

They conclude:


"Near term price target upgraded to 91p/share

Capital Drilling continues to look undervalued based on its stable core business with long term contracts, an ever-stronger balance sheet, dividend growth and opportunities to grow the contract base further in West Africa. Forecast 2019 free cash flow of US$14.2 million implies a 15.8% FCF yield at the current share price, and management have a proven record of either prudent investment or returning that cash to shareholders (leaving plenty of upside to our 2019 dividend forecast). We value Capital Drilling at 91p/share, representing 5x 2019 EV/EBITDA and a 1.8x multiple on the current share price."

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davidjhill 14th Mar 36 of 69

In reply to post #457948

Yeah but it is on a PE of 16 with debt of £64m and now at a dividend of 5.5%. Is priced at a higher multiple than most telecoms. Exciting bid price no granted, but given the growth products have no markers yet as to levels of success they may/may not achieve it's not a million miles away from fair value I think. Had hoped for a little more but not terribly unreasonable.

Ironically from an income vs volatility perspective I wonder if Vodafone (LON:VOD) may not be a bad home for me to recycle proceeds too. Unexciting, but 9% yield and I think a 10-20% upside over next 12 months so maybe achieve a 20% total return, more than I'd have expected from Manx Telecom (LON:MANX) anyway from here.

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grumpy5 14th Mar 37 of 69

Re Superdry's founder trying to lever himself back in to the company, it will be interesting to see how Ted Baker (LON:TED) survives without Ray Kelvin's creative talent. In the early days, when I knew him, he really was very inspirational.

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Effortless Cool 14th Mar 38 of 69

In reply to post #457933

Yes, fewer UP Global Sourcing Holdings (LON:UPGS) shares in issue as a result of buying for the EBT, so less dilution for shareholders, but also less cash per share for shareholders as a result of spending to buy the shares in the market rather than issuing new ones for "free".

Six of one ....

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Paul Scott 14th Mar 39 of 69

In reply to post #457863


I apply exactly the same rationale when looking at shares, particularly ones that have disappointed. As regards RBG, you asked;

Paul, would you buy Revolution now?

Absolutely, yes. I am looking to increase my holding significantly, when funds are available. I actually think risk:reward right now, at 63p, is the best it has ever been. It's really quite easy to see 100%+ upside from the current share price, and it would still look good value on an EV/EBITDA basis (which is what takeover deals use).

That's based on my assumption that the turnaround plan is going to work - which is not guaranteed of course. Although it's a pretty high likelihood that doing loads of refurbs will quickly boost sales & profits.

Regards, Paul.

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Gromley 14th Mar 40 of 69

In reply to post #457938

I remember thinking that Manx Telecom (LON:MANX) looked potentially  interesting recently, but never got around to looking further.

I note that the acquirer Basalt Infrastructure Partners describe themselves as "an independent infrastructure investment firm". I can't see any synergy or merger prospects here, so I would have to assume  that they think they are getting a bargain here (it's already quite debt laden so there's little opportunity to load it up with more debt and sell it on).

If the offer is close to your target price then I suspect it's worth just cashing in and moving on.

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ambrosia 14th Mar 41 of 69

this morning when Paul 1st posted about RBG, it was over 1% down, its now 2.2% up.

I'm not saying anything about cause and effect but Paul please say something nice about easyjet I'm regreting not selling last month at 1350 ;-}

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JohnEustace 14th Mar 42 of 69

In reply to post #457843

Re Revolution Bars (LON:RBG), I don't know where thejh is based but the same comment could apply to the two locations in Reading this lunchtime.

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JohnEustace 14th Mar 43 of 69

These come up on a Google search for the Revolucion de Cuba bar in Reading. Backing for the impression that they are mostly Friday and Saturday evening venues.


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Trident 14th Mar 44 of 69

In reply to post #457978

Fair comment EC, but as long as they don't go mad with options, and buy them at 'low' market prices (almost like a buy in) still seems reasonably sensible, assuming no cash crisis on the horizon.


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tic_tac_toe 14th Mar 45 of 69

Revolution Bars (LON:RBG) I am at the Birmingham Cuba venue now. It sits opposite Las Iguanas and another large bar so plenty of competition. That being said, the place is busy already with cocktail sippers, and tapas eaters etc. So it does feel like in some locations the daytime/early evening trade does work really well!
I would say possibly too many staff: a lot mingling around, probably on shift waiting for the evening trade. May pop back for supper and a bevvy!

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matylda 14th Mar 46 of 69

In reply to post #457993

Buffetology Fund buying is probably the reason you're looking for.

Blog: Briefed Up
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gsbmba99 14th Mar 47 of 69

In reply to post #457893

I've held the shares for a few years. Jarvis Securities (LON:JIM) earns far more interest on the cash balance than the base rate. I believe that the rules permit them to "ladder" the placement of the customer deposits to attract a better rate associated with term deposits. My impression from attending an AGM was that not all of the customer cash is immediately liquid. Some is, say, 90 days, some is 60 days and some is 30 days etc. If all the customers wanted to use all the cash, they would have to make good on this by breaking the deposit arrangements. They said that they have never had to break any deposit arrangement.

The placement of the deposits was said to have always fallen exclusively under the remit of the CEO. The CEO and other members of his family own a very considerable portion of the shares so you would expect that he would be ultra careful here. I take comfort from that but there have been statements in prior results from Share (LON:SHRE) that criticised "risky" practices from other market participants when noting how little Share earned in interest income. This was presumably aimed at Jarvis and probably to deflect from their own performance.

My estimate for cash under administration as at 30 Jun 18 is £229m. This is based on the last reported cash balance from 30 Jun 13 (I think?) and using the subsequently amended KPI of growth in cash under administration (which was 8.3% as at 30 Jun 18) to roll the amount forward. The term deposits attract higher interest rates. If we take interest earned of £4.081m for 2018 and divide it by the 30 Jun estimated cash balance (assuming it is representative of the average for the year) you get 1.78%. Using this same basis, the interest earned on cash has progressed from 3.87% in 2012 to 2.88% (2013) to 2.12% (2014) to 2.06% (2015) to 1.90% (2016) to 1.80% (2017) to 1.78% (2018). Despite the compression in interest rate, the interest earned has still grown at a CAGR (5 yrs to 31 Dec 18) of 5.4% while cash under admin has grown at a CAGR of 16.1% (5 yrs to 30 Jun 18).

The growth in the cash balance to 30 Jun 18 was 8.3% so a 7% increase in interest earned is not out of line.

If you look at Hargreaves Lansdown (LON:HL.) and others, cash looks to be fairly consistently about 10% of customer assets.

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fwyburd 14th Mar 48 of 69

In reply to post #458033

Hi Matylda,
If you are referring to the Revolution Bars (LON:RBG) RNS today, I think they were selling not buying. And two weeks ago, shame on them for declaring this so late.

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MBFP 14th Mar 49 of 69

In reply to post #457983

Thanks for the reply.


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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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