Small Cap Value Report (Tue 1 Oct 2019) - TND, ALT, HAT, RBG

Tuesday, Oct 01 2019 by

Good evening/morning, it's Paul here.

I'll start (this bit written late Monday evening) with some catching up from stuff I was too tired to write about earlier, to get you started on Tuesday morning.

Tandem (LON:TND)

Share price: 190p (up 3% at market close)
No. shares: 5.0m
Market cap: £9.5m

Half year report

(I do not currently hold this share, but have done in the past)

This group sells bicycles, mobility & leisure equipment, and toys.

The shares looked interesting earlier this year, after it reported a bumper H2 in 2018, of about £2.4m profit. Some investors thought this might be a new, higher run, rate, implying maybe £4-5m future annual profit.

That's not turned out to be the case, as H1 in 2019 reported £509k pre-exceptional profit, not the £2m+ that some imagined might be the case. Still, it's a good improvement on the -£298k loss reported in H1 of 2018.

Revenues also seem somewhat unpredictable (hence why profit goes up & down), eg.

H1 2018:  £12.7m
H2 2018:  £19.8m
H1 2019:  £16.0m

Hence it's looking as if the bumper H2 last year might have been a bit of a one-off bumper period?

Outlook comments are quite detailed, talking about each product category. The overall picture is this;

The potential threats on the horizon that we previously alluded to remain in place.  Whilst we shouldn't seek to 'blame' Brexit, we remain cautious as to the impact that it will have, should it materialise soon, with potentially uncertain future import duty rates and with regards to consumer spending which is discretionary for the type of products that we supply
Weak sterling, and therefore a correspondingly stronger US dollar, is also likely to effect the cost of future imports.
We previously stated that the longevity and success of most licences is limited and transient.  Whilst we continue to seek new, exciting and profitable properties there is no guarantee of this.

[Paul: note that Peppa Pig is mentioned, which has recently been bought out by Hasbro - how much impact could this have on Tandem?]
Despite these threats we look forward to the rest of the year with some confidence and expect to deliver a satisfactory result to our stakeholders for the full year.

Who knows what a satisfactory result would be? There doesn't seem to be…

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Tandem Group plc is a holding company. The Company is engaged in the design, development, sourcing and distribution of sports, leisure and mobility equipment. The Company operates in two segments: Bicycles, bicycle accessories and mobility, and Sports, leisure and toys. The Company's subsidiaries include Tandem Group Cycles Limited, which is engaged in the design, development, sourcing and distribution of sports, leisure and toy products; MV Sports & Leisure Limited, which is engaged in the design, development, sourcing and distribution of bicycles and accessories; Pro Rider Limited, which is engaged in the design, development, sourcing and distribution of mobility and leisure products, and E.S.C. (Europe Limited), which is engaged in the design, development, sourcing and distribution of leisure products. more »

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Altitude Group plc is a technology and information business providing services to the promotional merchandising and print industries across North America and the United Kingdom. The Company operates through Technology & Information segment that enables the buyers and sellers of products to interact and trade, through the provision of technology, catalogues and exhibition services, in the promotional merchandising and printing sectors. The Company provides technology services, specializing in cloud and server based software. Its Technologo offers a range of interactive image solutions, which are used for increasing engagement from online business-to-business (B2B) and business-to-consumer (B2C) buyers, and reduced cart abandonment rates. It also provides a Website solution for companies in the promotional product industry. It publishes catalogues annually for the promotional products industry, which include Spectrum and Envoy. It also hosts the Promotional Product Roadshows. more »

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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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  Is LON:TND fundamentally strong or weak? Find out More »

30 Comments on this Article show/hide all

rmillaree 1st Oct 11 of 30

In reply to post #518091

Revolution Bars (LON:RBG)

I see many 5 star reviews for the cocktail masterclasses from users with no previous posting history.

Good point John

also a few of them liked it so much  they left 2 reviews saying much the same thing. Perhaps it was  so good they reviewed as soon as they got home - woke up remembered it was so good but forgot they did the review and then did the review again.

I would say with freshers perhaps we shouldn't expect that they have a large posting history.

Perhaps i need to get myself to the next masterclass to investigate further?

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doublelutz 1st Oct 12 of 30

Revolution Bars (LON:RBG) - this is a share I exited nearer 200p but have watched subsequently. I noticed a bit of activity in recent days and was ready to re-enter on good results and perhaps a rise to 80p, This is not to be. There is a loss of £5.6M (10.4p per share) after impairment charges of £7.1M. Ignoring EBITDA, etc the figure I look at is the £5.6M loss because I can see either impairment charges or capitalised refurbishments being an annual figure even if not of this amount.. It is the nature of this business that bars have to be upgraded on a regular basis to prevent trade being lost to the latest "in" venue and the company eventually needs profits adequate to cover such costs.

What puzzles me is the trade receivables. As already mentioned by rmillaree in his excellent summary they are £12M being equivalent to 76 days sales. Does anyone have any idea how a chain of bars can have this sort of figure due to them?

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bestace 1st Oct 13 of 30

In reply to post #518111

What puzzles me is the trade receivables... Does anyone have any idea how a chain of bars can have this sort of figure due to them?

Bear in mind this figure includes prepayments and accrued income, not just physical cash owed to them at year end.

If you look at the last annual report the vast majority of the receivables (around two thirds) related to "prepayments relating to property rent and rates". Most of the rest relates to uncleared credit and debit card transactions.

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Howard Marx 1st Oct 14 of 30

In reply to post #518111

The Revolution Bars (LON:RBG) Trade receivables are £12.2m and Sales are £151.4m

So (12.2 * 365) / 151.4 = 29 days

By way of comparison, the J D Wetherspoon (LON:JDW) Trade receivables are £21.9m and Sales are £1818.8m

So (21.9 * 365) / 1818.8 = 4 days

Clearly an anomaly - maybe J D Wetherspoon (LON:JDW) customers mostly pay with cash, Revolution Bars (LON:RBG) maybe pay mostly with plastic?

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xcity 1st Oct 15 of 30

In reply to post #518131

"maybe J D Wetherspoon (LON:JDW) customers mostly pay with cash, Revolution Bars (LON:RBG) maybe pay mostly with plastic?"
Don't believe it. J D Wetherspoon (LON:JDW) cash proportion may be higher, but there will be a lot of card payments too. Many people don't ever carry much cash.

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xcity 1st Oct 16 of 30

One of the things I dislike about Revolution Bars (LON:RBG) is the level of uncertainty over what is actually going on.
First there are the openings and closures.
Then the impairments/capitalised refurbishments.
Then knowing exactly how good their estate is looking.
And the prepayments and lease terms.
Not forgetting the question in my mind now about how exactly card payments are processed. Cash too I suppose.

I've never seen any reason to simply trust the management. I suppose I'd really like to see the income/expenditure per branch on a daily basis from signing the lease to termination or now. I'd like to believe their management accounts would allow them to do this, but somehow I doubt it. It's only when you have absorbed the typical patterns from such details that you know how to watch for risks or significant change in trends.

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doublelutz 1st Oct 17 of 30

In reply to post #518131

Revolution Bars (LON:RBG) - yes, you are right with the sales. Not sure where I got my figure from. Must be going cross-eyed.

When my son had a business taking credit cards the money landed in his account right away so I am not sure much of the debtors would relate to this. However, Bestace mentions prepayments and I can imagine rents paid in advance could take up a tidy sum. In that event while it is obviously an important figure to bring into the accounts it is not something that will become available to pay the creditors.

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abtan 1st Oct 18 of 30

In reply to post #518046

Thanks for your thoughts on Revolution Bars (LON:RBG)

As a holder I thought I would throw in a few more (biased?) comments:

First, some assumptions:

  • Cost increases (NMW + pension increases + business rates) are now baked into the numbers. So venue EBITDA margins should be maintained going forward after quite a material Year-on-Year drop.
  • I would expect overall revenue to increase due to the inclusion of 7 venues that will be open for a full 12 months in 2019/20. But let's assume that revenue remains flat overall in case some venues under-perform
  • Annualised savings of £1m are expected for 2019/20

Now onto cash flow AFTER maintenance CAPEX = c£7m

(best highlighted in today's presentation)


Average spend on refurbishing the 8 sites in 2018/19 was c£175k (£1,4m in total)

15 sites are planned for refurbishment in 2019/20, so an additional £1.2m expenditure expected, which effectively cancels out the £1m annualised savings the company says it will make this coming year.

In other words Cash generation should, at the very least, be maintained at around £7m per year

For a more conservative estimate, to account for working capital movements, let's assume that this figure might fall to c£6m per year.

Finally there are 2 things I would consider when assessing whether the shares are worth buying:

  1. Debt is £17.5m, so this should quite rapidly be paid down in the coming 12 months, as will the financing costs, so not much of a risk (despite my aversion to any sort of debt)
  2. A market cap of £35m for a company that, at the very least, will generate operating cash flow of £6m-£7m continues to look cheap to me. 

I was hoping for more today, but will continue to hold with a medium term view in mind as I think the company is moving in the right direction and continues to look good value.



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rmillaree 1st Oct 19 of 30

Revolution Bars (LON:RBG)
I have checked the annual report and the receivables total includes prepayments - and this is the vast majority of the total - being £8.2 million per last years annual report. I am guessing this is mostly prepaid rent.

For completeness other stuff in receivables will include supplier rebates due - i am guessing with regard to card sales - i am guessing its likely to be approximately 2-3 days sales not banked and therefore added to receivables

Note with regard to rent/other prepayments , its not easy/possible to turn this into cash without shutting up shop , so on a cash crunch worst case scenario that's not really going to provide any liquidity help if they need to pimp their assets and find some extra cash.

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rmillaree 1st Oct 20 of 30

In reply to post #518166

Revolution Bars (LON:RBG)

Thanks for adding the figures from the presentation this adds some useful extra detail.

I think one adjustment you need to your calcs is for the finance costs which i think are an after the line adjustment so that will reduce the free cash ledt by approx 0.75 mill?

i would be wary about cost savings resulting in matched higher profits - can't remember the last time a company said following year profits were up £1 mill and that was all due to previously announced cost savings. It is a fact wage inflation at present may be an ongoing issue - even the current bods in charge all of a sudden want to please the millenial workers by offering higher wages £10.50 an hour mentioned in the last 24 hours - the current bods will end up left of "new" labour (blair) if they aren't careful (or there already)

I guess?? the remainder of the difference in our figures is probably down to my figures not specifically adjusting out for p&l related opening costs that may not repeat when openings cease- so cash flow may very well be closer to your estimate than mine happy days :) -so many different measurements my head is done in - lets have a look in 6-12 months and see how this pans out. Perhaps some broker updates will hopefully confirm the debt reduction plans / cashflow estimates.

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iwright7 1st Oct 21 of 30

Paul commented on the Albermarle & Bond 118 pledge book purchase by H & T (LON:HAT), calculating the pledge books to have cost £71K each. This seems very cheap, but does anyone with industry knowledge or broker info know what a typical pledge book might be worth?

Of course there is also the aspect of the acquisition of thousands of ex A & B customers who will tend to migrate to H and T going forward?

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Aislabie 1st Oct 22 of 30

For those who follow the Stockranks system there is an interesting point that can be observed today in the ranking of Crimson Tide (LON:TIDE)
The category of "Falling Star" is given when the comparison is "vs European peers", but on the comparison "vs Global Peers" it rises to be a "High Flier". These categories are so diametrically different that it endorses my view that these rankings need to be treated with considerable caution.

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Gromley 1st Oct 23 of 30

In reply to post #518206

I presume that would depend on the size and catchment area of each store Ian?

However from companies house (speedloan finance) that as of March this the customer loan book was £14m. I guess the number could be seasonal, but that is probably a decent benchmark of what H & T (LON:HAT) bought for £8m.

Although I note they bought 113 pledge books, but other reports suggest that A&B had 116 stores - so I'm not sure what happened to the others.

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iwright7 1st Oct 24 of 30


Thanks for the H & T (LON:HAT) loan book info.
Looks to be a -40% purchase to book, which sounds good. Would be interesting to know how much the £14M A & B loan book was as a % of the current H & T (LON:HAT) loan book, to give an idea the relevance of the H & T purchase?

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Gromley 1st Oct 25 of 30

In reply to post #518226

H&T's Pawnbroking pledge book was roughly £50m I think, so it is relatively material.

One thing to bear in mind in terms of the discount to value is that as I read it H&T are taking on the cost of redistributing all of the pledged items back to local branches (or direct to customer). I cannot imagine that they have an existing logistics operation to ship valuable items around the country as they normally stay put.  I have no way to guess what the cost may be.

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Zipmanpeter 1st Oct 26 of 30


I went through the analyst deck you referenced this pm & saw this (slide 24 in Appendix):
"The average lease length is 27.0 years, with 14.2 years remaining at FY19 period-end"

Did mgt give any insight into whether this includes any of the 11 'impaired' bars.  Presumably, (I hope) these are mostly older, smaller bars from the earlier days.  

Does this also mean the big new bars are being taken on leases of 30 years!  Any comment on this given the volatile nature of the high street/property these days.  Would such leases be inflation linked or with exit breaks after XX years?

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hawkipa 1st Oct 27 of 30

Whilst only now a former Revolution Bars (LON:RBG) holder, have just read all the comments/commentary on it. I feel compelled to say what high quality all the input is and has certainly helped me, without actually having to read the RNS, to know the sidelines is the right place for me to be.

The only contribution I can make to the debate is a small piece of scuttlebutt. As I understand it from the cool kids I know, the bars are no longer fashionable to visit as there are generally better/more hip alternatives. This seems a very big hurdle to overcome in the long run for a destination led estate. Nevertheless, good luck to all holders.

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mojomogoz 1st Oct 28 of 30

In reply to post #518031

Re SCS - started writing a response to you (WillBarraclough) and then it long so made it a post....

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Laney 1st Oct 29 of 30

In reply to post #518241

If H&T is anything like Ramsdens they already have a logistics operation which maintains retail stock for sale in branch from centrally sorted and stored quality jewllery made up of pawned items not collected/paid up, sent in from the branches.  So in effect albeit the branch pawn book is operated at branch level the retail operation is managed centrally.

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Gromley 1st Oct 30 of 30

In reply to post #518271

Thanks Laney, you might be right, but I had presumed that pledged items stay in the 'home store'.

Anyway, whatever the practicalities, I would be uncomfortable to assume that the gap between the book value of the loan book and the price paid is pure gain. I cannot believe H&T were the only offerers to take over the book, so there must have been at least some degree of proper 'price discovery'.

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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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