Small Cap Value Report (Thur 14 June 2018) - RBG

Thursday, Jun 14 2018 by

Good morning all. I am writing to you from a secret location within Hever Hotel, in advance of presenting to the Mello conference. For obvious reasons, this report will be shorter than usual.

Revolution Bars (LON:RBG)

  • Share price: 136.5p (-13%)
  • No. of shares: 50 million
  • Market cap: £68 million

Trading Update

More issues at Revolution. As MrContrarian puts it, "excuses ahead of expectations".

  • "challenging and volatile trading conditions"

It's tough out there at the moment.

Total sales for the Group in the second half up to 9 June 2018 are up by 7.3%. However, like-for-like sales are down 1.7%. Adjusted EBITDA is now expected to be below market expectations and in line with last year.

Like-for-likes haven't been going far for Revolution. In H1, they improved by just 0.4%.

Full-year adjusted EBITDA, adjusted for pre-opening costs, is set to be around the same level as last year: £15.1 million.

Pre-tax profit was much lower: £3.6 million.

This company has a pattern of very complicated adjustments, forcing investors to make up their own mind about what the true level of profitability is.

The weather has been too hot and too cold, and we have a reference to 5 new venues this year, when 6 had been promised.

Bulls will find some hope in the reference to the new Food Director, hired "to drive a step change in Food sales and profitability".

I can't possibly agree with this, since the casual dining sector is widely acknowledged to be over-supplied.

Revolution doesn't appear to be differentiating itself particularly well as a drinks venue, so why should we expect it be able to differentiate itself in food?

There are no prizes for guessing that I'm not at all tempted to dabble in these shares.

On the positive side, net debt is likely to remain at a manageable level - last reported at £4.5 million in the interims - and the shares are superficially cheap against earnings. It's also conceivable that one of last year's suitors will come back with another offer, if they still believe that the EBITDA multiple is cheap.

The Price to adjusted EBITDA  multiple is now about 4.5x (perhaps closer to 5x on an enterprise value basis), and that does seem to be at the cheaper end of the normal range.


On the negative side, however, the company looks at the end of the day to be a somewhat ordinary bar chain, with weak…

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All my own views. I am not regulated by the FSA. No advice.

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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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47 Comments on this Article show/hide all

abtan 14th Jun 8 of 47

Revolution Bars (LON:RBG) thoughts:

  • Something is either wrong with my  notes, or with their notes. There are now only 5 new openings this year. My notes said there would be 6. Where did x1 opening go?
  • Next year 6 openings planned; my note say 6 openings planned.
  • 49 weeks LFL sales -0.5% doesn't seem disastrous, though I concur the excuses don't help.
  • I make FY EBITDA/fully opened venue £0.33m, down from £0.35m last year.
  • No mention of the cash position, which is what I really want to know. If the business is still generating lots of operating cash flow then the valuation still looks cheap
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runthejoules 14th Jun 9 of 47

Very difficult to buy Revolution Bars (LON:RBG) despite its nominal big fall, or to open a spread bet. Seems like a false trapdoor..

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Graham Ford 14th Jun 10 of 47

GYM (LON:GYM) placing last night at only a very small discount. Raising money for purchase of sites from easygym. Trading statement says membership growth of 31.8%. All very positive it seems. Their model appears to be working well and they are expanding at a time when it may be possible to obtain new sites at low rents due to the level of distress in retail sites.

Safestore Holdings (LON:SAFE) interims. Basic eps up 43.4% and further organic and acquisition expansion. They are now a mid-cap rather than a small cap but a possibly interesting play on the problem of people having to live in smaller properties with less storage than they really need because housing is so expensive.

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BIACS 14th Jun 11 of 47

Would be great to hear thoughts on NWF (LON:NWF) following today's update. The news on debt being down below expectation was particularly welcome as I have always had a concern over this (some figures would have been nice though...).  5.5% up seems a little bit mean for a "significantly ahead of current market expectations and the prior year" update - perhaps room for some gradual gains in the coming days as market digests it? (no feed pun intended). 

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fredericktug 14th Jun 12 of 47

Morning All,

I second a look at Revolution Bars (LON:RBG), which I hold.

In answer to Abtan above, I have just recently read that their York license application was turned down, they appealed, but have just in the last few days withdrawn their appeal. it was due to be in a part of the former Debenhams but was rejected by licensing as it was in a Cumulative Impact Zone. Shame really, that shut Debenhams may now lie shuttered. I think it would be better to welcome new leisure uses and just police better at night (and enforce license conditions/compliance), than let city centres slowly stagnate.

I think the 118p price for Revolution Bars (LON:RBG) is a brutal reaction (I did very well the last time there was a spike down like this, ending up selling at around 225p when the takeover was at fever pitch. Whilst I doubt Stonegate will come back again, there is still interest from Deltic and who know,s someone else might take a bite. I am considering a top up as we're back in fundamental undervalue territory - that's why Stonegate came knocking last time.

I think £RGB is a long term survivor and will emerge stronger. Deals on new sites are also getting better by the day and the main offering is sound, if not perfectly executed at times. I have tested the product myself on a few occasions!

Still, takes all opinions to make a market.


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momentofclarity 14th Jun 13 of 47

Revolution Bars (LON:RBG) some broker commentry this am:
-Numis now sees 2H softer than expected and co. “unusually” also underperformed in very hot weather, given only a third of its sites have outdoor space, Numis analyst Tim Barrett writes in a note PT lowered to 190p from 200p; buy rating maintained
-Separately, Canaccord sees takeover speculation reemerging after the stock falls, analyst Nigel Parson writes in a note; buy rating maintained

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Camtab 14th Jun 14 of 47

RBG for me too please Graham. I can't read the report too negatively. Outside trade sites are up inside down. Weather has affected it, but not disastrously. They have good plans and more focus. Weakness is probably going to be picked up on if bidders are out there. Overall if I could have I would have added more when they were 20% down, but Hargreaves trading only seems to open up around 8.30am?

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fwyburd 14th Jun 15 of 47

In reply to post #374059

Re: Revolution Bars (LON:RBG)
Let's also not forget that in the last few weeks we have seen three large shareholders increase their stakes/open up a position:
Artemis: Up to 18.87%
Castlefield: Up to 10.33%
And new arrival, Axa: 5.04%

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tic_tac_toe 14th Jun 16 of 47

In reply to post #374019

I am not really a person to follow charts blindly, but I was able to watch and pick up some around 121p today as the price moved down to the previous gap. Find it quite fascinating.

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HornBlower 14th Jun 17 of 47

I think RBG could be an opportunity here. Snow obviously must have had an impact, hot bank holidays not as obvious but makes some sense. No CEO for 6 months can't have helped. If new CEO and newish Food Director can make an impact this could recover strongly operationally. New CFO seems sensible. Don't think the World Cup will help, maybe modest negative. At 5.4x unadjusted EBITDA not paying up much for the chances of success.

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Paul Scott 14th Jun 18 of 47

Good morning everyone,

My take on Revolution Bars (LON:RBG) is pretty relaxed. EBITDA being flat against last year is hardly a disaster. The cold weather reason given, would have affected trade in Feb-Mar for sure. I'm less convinced by the excuse given for hot weather depressing sales more recently.

I was half-expecting a temporary glitch, as there has been quite a long period with no CEO. The new chap, Rob Proctor, starts soon. There are some quick & easy wins to be had - primarily on the food, which currently is dire, and poor value for money too. The new CEO has a background in food, so I am hoping he should be able to dramatically improve sales/profits, if he brings in a top notch food offering at reasonable prices. Food is high margin, so adding additional sales on to a fixed cost base would be highly beneficial to profit, potentially. Also, what's the point in putting so much effort into premium drinks, if your food offering is probably not even up to the standard of the local Harvester? A massive blind spot from previous management.

It remains a highly cash generative business, on a dirt-cheap rating. Find me another self-funding roll-out which is also paying decent divis, anything like this cheap!

If the new CEO is any good, he should be able to turn LFLs positive again, and then we have probably an easy 50% upside on the current share price. Nice to see Instis hoovering up an overhang of shares - I think part of the problem here is that a lot of people bought stock in the hope of an improved bid from Stonegate, but liquidity has since been poor, leaving them high & dry.

I will shortly be writing to the new CEO, with my ideas for how they could greatly improve operations, after my own extensive research at 4 of their sites.

I think a 5-10% share price fall today is about right, given that recent trading has been a bit worse than expected. The long-term value in the company is however undiminished, as this profit warning firmly sits in the temporary/fixable problems bracket.

Regards, Paul.

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rmillaree 14th Jun 19 of 47

In reply to post #374049

Revolution Bars (LON:RBG)

 I am considering a top up as we're back in fundamental undervalue territory - that's why Stonegate came knocking last time.

i did similarly well when the bid came along, however the company have doing nothing to convince me that the fundamentals are as good now as i thought they were at the time of the takeover. It seemed like they kitchen sinked everything last year reducing future depreciation charges etc) . So a late profit warnings along with the already present "large exceptionals" leave me wandering just quite how much the company are actually making.

New sites and they are struggling to add profit that should be the biggest worry , roll out format is only valid if they can show the extra sites are worth the cash invested.

Market cap now is £320 million right ? are they making 30 millon per year clean profits ? - i doubt it.

I kind of thought they were kitchen sinking to look good this year but expect they they may simply be struggling on all levels.

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HornBlower 14th Jun 20 of 47

In reply to post #374139

RBG market cap is £70m not £320m

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rmillaree 14th Jun 21 of 47

In reply to post #374039

Looks like the extra shares (10% ish) should be covered by the extra new members (10% ish) would have been nice had they said this would increase EPS all other things being equal (only quick look i might have missed something)

There should be good economies of scale be going on here though the more punters the more the fixed plc/IT/blah de blah costs are spreadabout more efficiently.

the shares are up 40% or so since i bought last summer, the company wasn't exactly cheap then so i do have to admit i am thinking of cashing in my chips. I am though trying to make an effort to hold onto shares where the company are delivering and the news is all good - in that regard i am not in any immediate hurry to do anything.

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ISAallowance 14th Jun 22 of 47

In reply to post #374134

"I will shortly be writing to the new CEO, with my ideas for how they could greatly improve operations, after my own extensive research at 4 of their sites."

You may want to leave at least 12 hours and several black coffees between your extensive research and pressing send on your missive to the CEO ;-)

I'll get my coat...

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Paul Scott 14th Jun 23 of 47

In reply to post #374139

Hi rmillaree,

I think you need another strong coffee, and recalculate your figures!

Market cap now is £320 million right ? are they making 30 millon per year clean profits ? - i doubt it.

RBG actually has 50m shares in issue. So at c.140p per share at the moment, the market cap is only £70m. It has negligible net debt - which could be paid off in full just by stopping new sites capex for less than a year.

I continue to be amazed at the overwhelmingly negative sentiment from investors, for such a good, cash generative self-funding roll-out. Investor sentiment doesn't make any sense at all to me. The bottom line is this - Stonegate offered 203p cash for the company a year ago. Since then profits have been flat, so that figure is still valid. If a competitor is willing to pay x pence per share, then usually they think the company is actually worth x + 30% or more, otherwise they wouldn't be interested in buying it!

We'll get a nice payday here, with patience, I reckon.

These bars are absolutely heaving in the evenings, especially at weekends. They need to make better use of the fixed overheads by getting punters in during the day, and early in the week. A fantastic, and good value food offering is the key to that. Also, I've noticed that the bar service is too slow - because staff are fiddling around making complicated cocktails, whilst dozens of people are waiting for 10-15 minutes, just to get a pint. So a quick win would be to separate the bar into 2 zones - fast service for pints, etc, and a separate area for cocktails. They should have an App whereby people can order the cocktails whilst sitting at a table, and have them brought over. Then just have certain staff concentrating solely on making the cocktails, whilst others are free to take the money & deliver. All pretty basic stuff, it amazes me that the company currently operates so inefficiently.

These relatively quick & easy upside actions are what make me positive on the upside potential. It just needs better management, so all eyes on the new CEO!

Regards, Paul.

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mercury61 14th Jun 24 of 47

In reply to post #374134

Is that the one at Audioboom Audioboom (LON:BOOM)
RNS Revolution Bars Group plc (the "Group" or the "Company") announces the appointment of Rob Pitcher, who will join the Board of Revolution Bars Group plc as its new Chief Executive Officer.

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lavinit 14th Jun 25 of 47

In reply to post #374009

UP Global Sourcing Holdings (LON:UPGS) acquire established brands at zero to v low cost and then put it through the UPGS machine and see if they can make money from it. Near term impact from Kleeneze probably low and take a couple of years to work through.

They’re pushing a kitchenware brand George Wilkinson they acquired right now so interesting to see if that gets traction. I’ve seen a bit in some shops.

They have other brands that seem to be stagnating too and/or need some investment (Z-frame, Dreamtime, Constellation, etc). Russell Hobbs, Salter and Foreman are well known and they license these guys but their revenue ramp has come from own acquired brands Beldray and Intempo. Can they repeat? If they do them they are more than just cheap (IMO) goods trading house

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Trident 14th Jun 26 of 47

In reply to post #374164

Whilst I can see what Paul says on Revolution Bars (LON:RBG) makes sense, I am puzzled that the hot weather as referenced in the RNS affected sales in properties with no outside space, and cold weather when outside space was not required.

I would have thought cocktails would be favoured during hot weather, but not necessarily in cold.If it doesn't work either way, its a bit of a Goldilocks puzzle to know what is the right weather, or whether the estate is not entirely suitable to the market they are after.

Hopefully the new CEO can make sense of what is optimal, and tune their offering accordingly.

I am a Holder

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Talygarn Tom 14th Jun 27 of 47

In reply to post #374189

I found the statement confusing when I first read it but it makes sense. In very warm weather people prefer a venue where they can either sit outside or have access to a terrace or similar space as crowded bars can get too warm. I would also add that bar venues tend benefit in World Cup years even if they aren't a primary viewing venue.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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