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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54 Comments on this Article show/hide all

fwyburd 14th Jun '18 15 of 54

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 '18 16 of 54

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 '18 17 of 54

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 18 of 54

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 '18 19 of 54

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 '18 20 of 54

In reply to post #374139

RBG market cap is £70m not £320m

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rmillaree 14th Jun '18 21 of 54

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 '18 22 of 54

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 '18 23 of 54

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 '18 24 of 54

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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mojomogoz 14th Jun '18 25 of 54

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 '18 26 of 54

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 '18 27 of 54

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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rmillaree 14th Jun '18 28 of 54

In reply to post #374164

Revolution Bars (LON:RBG)

RBG actually has 50m shares in issue. So at c.140p per share at the moment, the market cap is only £70m

Thanks for that Paul that makes much more sense i  - i had two screens  open and was looking at the wrong one of the two when i noted the figure - Useful that Stokopedia has the info if you can check the right page !

My posts were as often all a bit rushed, £70 mill is much more scope for upside, i would still like the company to be on the up though rather than the down and as you say its the annoying things this company doesn't probably do that a  well down company like JDW (hmmm they do also have queue's when busy). I did specifically when doing my company research notice the cocktail waiting time was an issue at Chester (only a  basic 2 for one PC) so a simple system to avoid long queue at the bar should be found. Thankfully my local bar charges less than £2 a pint for beer and the main bar man dude is of the Ninja spiderman type who can pour 4 pints at once whilst not forgetting what you didn't even need to ask for.


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Firtashia 14th Jun '18 29 of 54

With respect to Revolution Bars (LON:RBG) I'm as cynical as Graham, having been stung by it already last year. A lot of companies are pure plays on commodities or forex, the direction of which I personally find impossible to predict. If the authors of today's update are to be believed, the fortunes of this company appear to be a play on the British weather, (not too cold, not too hot), which I find equally impossible to predict. Therefore how is this company any less speculative than those miners and oilies?

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barnetpeter 14th Jun '18 30 of 54

RBG.....made a stonking profit on these last time having first been short and then going long as the nosy buying was obvious. A bid was made two weeks later. Crazy it was not accepted.

This morning was a buying opp I thought. I agree though that a new bidder will not pay 200p. 180p perhaps?

A sell of the business is definitely the way forward here.

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ricky65 14th Jun '18 31 of 54

In reply to post #374134

Hi Paul

I remember our Twitter disccusion on Revolution Bars (LON:RBG) in April where you said that RBG was "bullet-proof".


Today's profit warning suggests otherwise! There are no guarantees with stocks.



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rmillaree 14th Jun '18 32 of 54

ricky 65

in April where you said that RBG was "bullet-proof".

Nice bit of selective posting there - Paul clearly was clearly referencing the balance sheet strength with that comment.

A Pretty astute comment really as despite the poor performance and the profit warning - the shareprice is actually above the level at the time the comment was made. So the "Bullet-Proof" balance sheet has done its job at minimising downside risk when things don't go as as planned.

There are no guarantees with stocks.

I think we would all agree with this comment :)

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dscollard 14th Jun '18 33 of 54

Revolution Bars (LON:RBG) is also hampered by its poor liquidity , typically around 40-50K a day . That combined with its poor technicals made it a no-go for me. I increasingly observe the "nothing below a 200MA" maxim unless I am very deliberately in a reversal play with very fixed rules good (liquidity being one) or it is in an area where I have good expertise. We are late in a bull market so overreactions are becoming accelerated and more brutal as I suspect there is more crowding around the exits. 

That said, today's price action in Revolution Bars (LON:RBG) is interesting and should give holders some cheer as it reversed rapidly off the decline. I note the big volume spike on 7 June was Artemis taking a much bigger stake. Instis now hold almost 80% of the free float so price dislocations can ironically be more severe if it is the loose hands (PIs and small traders) that are the dominant source of liquidity. 

Today's reversal is oddly bullish despite the bad news.

I know Paul has deep sector expertise in this space and suspect this is one of his "special situations"

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ricky65 14th Jun '18 34 of 54

In reply to post #374239

I think people have missed my point - Paul was implying that the risk with Revolution Bars (LON:RBG) was low because it has a "bullet-proof" balance sheet. Over the years I've seen plenty of stocks fall heavily with what many consider good balance sheets. A company doesn't have to go broke for it to cause damage to a portfolio. This Minervini quote comes to mind - "If analyzing balance sheets were the Holy Grail for stock investing, accountants would be the world’s greatest traders."

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About Graham Neary

Graham Neary

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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