Small Cap Value Report (Tue 17 Oct 2017) - RBG, CALL, DOTD

17th Oct '17 by Paul Scott

34 comments 13138 reads

Good afternoon, it's Paul here!

As is often the case, I'm running late today, so this article will be updated througout the afternoon.

To get you started though, here is the link to yesterday's report. I added some additiona;l comments on FootAsylum & a new section on Revolution Bars (LON:RBG) to Graham's report. Although that has since been overtaken by events today (more on that below).

Revolution Bars (LON:RBG)

Share price: 177.5p (down 5.1% today)
No. shares: 50.0m
Market cap: £88.8m

(at the time of writing, I hold a long position in this share)

Results of Court & General Meeting - the 203p cash offer from Stonegate has lapsed, due to inadequate support from RBG shareholders.

I'm struggling to get my head around the 2 tables provided in the announcement today. One is for the court meeting, and the other is for the company general meeting. There's a large difference between the votes, which I don't understand. Have any readers worked out what's going on?

Anyway, it doesn't really matter, because the overall result is that shareholders have not supported the takeover scheme of arrangement to anything like the necessary 75% threshold. All of which makes me wonder why Stonegate did not seek assurances from the main RBG shareholders before going ahead with a formal offer? Also, why did RBG management recommend the offer, if shareholders were not going to back it? Most odd. The only explanation I can come up with, is that perhaps Deltic's intervention de-railed support for the Stonegate offer, as RBG shareholders began to realise that the 203p cash offer was not a good price after all?

RBG today reassures shareholders that the company has a promising future;

The Board remains confident regarding the underlying strength of the Revolution business and its ability to operate and grow as a standalone business, not least given the scale and strength of Revolution's new venue pipeline and the returns achieved by new venues opened in the last two years.

The Board considers that its clear and focused strategy, the quality of Revolution's sites and customer proposition, and the talent within the business, leave the business well placed for further growth.

Revolution is proud that it has delivered 16 consecutive quarters of…

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pwozzy

17th Oct '17

Hi Paul,

Aware that you sold out of Seeing Machines (LON:SEE) (Seeing Machines) some time ago because of the very reasons you highlight above for Cloudcall (too early in jam tomorrow), but would be interested in hearing your thoughts on their most recent RNS today (https://www2.trustnet.com/Investments/Article.aspx?id=201710171240408381T)

It looks like they might be preparing another placing in order to raise more cash, however with a big pipeline of opportunities in Auto/Fleet with tangible revenue coming in, will they be soon also reaching "wait for the tipping point when it's becoming commercially viable - which is often at a much lower share price, after several placings."

In case you haven't seen it, Seeing are behind the new 'driverless' feature in General Motors Cadillac CT6 which has so far received positive reviews.

See are still burning through cash but after the next placing, I'm wondering whether we will see a tipping point through the first quarters of 2018

Brookeda

Yes exactly this.
I sometimes read some interesting things in the morning that I wouldn't mind sharing but then when I log on it's only open at a later point in the day (that's not a compliant btw.)
MrContrarian etc have started adding their thoughts which are equally useful, would be good if it's available earlier so opening it up the day before.
Dave

Hedgecutter

Good afternoon Paul.
I know you have a bit of an aversion to Israeli AIM stocks, so I wonder what your thoughts are on yesterday's announcement from XLM?

"RNS Number : 7442T
XLMedia PLC
16 October 2017

Update regarding Dividend Payment Date

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, announced on 12 September 2017, a timetable for the payment of its interim dividend, which included a payment date of 13 October 2017 for the cash dividend of 4.0226 cent per share.

The Company was made aware earlier today that, subsequent to XLMedia transferring the funds and them having been received by the registrar, the payment of its interim dividend has been delayed due to a processing delay at the bank. XLMedia is taking steps to resolve the issue as a matter of urgency. The Company will make a further announcement to confirm the payment date as soon as it has clarity."

I was away in Pembrokeshire in yesterday's storm, so missed it, but sold out for safety today.
Any thoughts please.

Nick

cholertonandrew

Thanks Paul. I can imagine the sinking feeling hearing about another CALL placing. My initial reaction when I saw the headline this morning (and before the price) was I can’t believe it because Simon Cleaver addressed the question in the latest webinar without being asked and said they were good to breakeven. I think as you said though it’s a question of price and it also sounded like they were having to delay going after some good opportunities through the need to keep costs low. So I think it’s a good move and it also removes that uncertainty, especially should the markets heavily fall. They’re delivering the strong growth so I think the spend is justified and thankfully the institutions agree.

I think it was your writing on Call that first drew me to this blog. I bought some at around 170p and was stunned when they announced the 90p placing. I googled for commentary on it and found this brilliant blog! and have remained a reader ever since. I’ve slightly adjusted my position too several times but have held the bulk of it and thankfully was able to add around the 90p level.

Yes, BMUS has done spectacularly well, the chart looks more like a rocket going off rather than a gradient.

Best wishes,
Andrew

kevfle

I've been looking at DOTD today. My main concern (and I think that this is a point made by Paul previously) is that although revenue is up 19%, spend per customer is up 24%. So it looks as if growth is being achieved by increased sales to rather than increasing the customer base. How long will they be able to continue this for? They do say that new customers have been won during FY17 but they must have lost quite a few as well - so a fair amount of churn in the business.

Roger Lawson

Re CALL, I note the comments from Paul and others, and yes the placing price discount is relatively small but it still means 19% dilution unless you participate (which most private investors won't be able to do). Yes you could buy some in the market to compensate, but the institutions will still be paying a substantially lower price at this point in time. The lack of an "open offer" alongside the placing, when there was no rush to do this placing apparently is very disappointing. And the previous comments from the CEO about no need for more fund raisings does not go down well.

Aislabie

RBG depends on a continuing fad for expensive (overpriced?) cocktails in a consumer market beginning to be spooked by inflation. There must be a limit to the number of urban concentrations containing a reasonably affluent, younger clientele.
The Board may have recognized that now is as good as it gets and I would be reasonably concerned that they may be right.
An undistinguished management team, modest LFL growth opportunity, continuing capex and start up costs seem to combine to make 203p a far from mean price

OsullivanB

dahokolomoki

Revolution Bars (LON:RBG) will continue to do well.
Unemployment is all time low. These are not 50 year olds getting back into the job market, but robust employment of the 20-30s, which are the target market for RBG.
Brexit pound squeeze is now falling out of YoY comparisons of results.
High street rents continue to slip, so the business case for future new sites becomes even better for the brand.

The one big negative I can think of is the tightening of the consumer unsecured debt market, which is starting. Credit cards are going to start becoming harder to get, so that will definitely put a squeeze in discretionary spending like at RBG.

Gromley

Paul, I think the problem is as much to do with the Revolution Bars (LON:RBG) management as the sector. They lost all credibility with their ridiculous inability to factor in known cost increases into their forecasts. That cannot all be blamed on the finance department. Any director level manager should have been aware of the increases in rates, apprenticeship levy, etc.

I totally agree with this and it seems to me that "the management's" willingness to accept the [lowball] Stonegate offer (which involved them keeping their jobs) whilst not even being prepared to entertain the Deltic merger (which involved replacing the management) tells you all you need to know about how the management prioritise their own benefit vs that of the shareholders.

I have serious doubts about how competent the current management team is to deal with any consumer slowdown. So for me I shall be quite happy to sit on the sidelines for a while - my guess would be that the shareprice withers but at a suitable price and time-gap Deltic will be back.

For the moment though, I could not invest in this stock having no faith whatsoever in the management.

MarkOR

Re CALL. Two facts are perhaps worthy of mention.
+VE The share placing was done with EIS/VCT tax benefits to new investors. That means - I think - a 3 year hold for both types of shares (to maintain their investors tax benefits). Means long term hold.
-VE? I find it strange that CALL would use the new money to chase after MS Dynamics. Bullhorn is a specialist provider of recruitment software and CALL has a mere 3% penetration of its 400-450k user base. And it would appear that the CALL VOIP product fits into the Bullhorn glove superbly. You don't want all your eggs in one basket, but MS Dynamics (like Salesforce) is more a general purpose tool than a tool designed for recruiters. I'd have preferred CALL to have doubled down on the existing winning horse.

Paul Scott

18th Oct '17

Hi Hedgecutter,

I wouldn't want to speculate on the issue with XLMedia (LON:XLM) and its delayed divis, as I have no information or view on it. My main work here is just to review trading updates & results statements. Plus occasionally, takeover bids.

Regards, Paul.

Hi Roger,

I disagree re Cloudcall (LON:CALL) placing. The 5% discount is immaterial. If you or I want to top up in the market, we can do so with no problems, at a similar price to the placing. Hence there is no need for an open offer, and there would have been minimal take-up from an open offer.

The placings to object to, are the ones which heavily dilute, at a deep discount. The latest placing from CALL did not heavily dilute, nor offer a deep discount, so it's fine.

Also, the Instis are getting really excited about CALL - I've spoken to several, who see it as a new dotDigital (LON:DOTD). So a placing is actually a good way to get some of them in, and they could well then be follow-on buyers in the open market. Whereas they wouldn't bother trying to build a small position from scratch, with open market purchases. Placings are therefore quite useful to get high quality institutions into a company as a starter for ten.

I think you're a bit behind the curve on this one. Although I was very much ahead of the curve, by years (not in a good way lol!) ;-)

Regards, Paul.

Hi Aislabie,

You'd be surprised. I was talking to my young Turkish hairdresser the other day, and he was lamenting how his peers are perfectly happy to spend £200 on just one bottle of wine, in a trendy bar, to impress the ladies.

So I got the impression that there are absolutely loads of younger people who actively want to splash the cash, in a nicely fitted out bar, in order to improve their chances of pulling. It's probably always been like that!

Regards, Paul.

peterg

I find that fairly scary to be honest, and would suspect that the ease of cheap(ish) credit funds a lot of that sort of behaviour. What will happen when interest rates start to rise? A further downturn in the economy and rising rates - both firmly on the cards for the next few years - could hit the likes of RBG hard.

Peter

gus 1065

As part of the Revolution Bars (LON:RBG) fall out the CEO has resigned with immediate effect. I wonder if he jumped or was pushed ...? Chairman has taken over as interim Executive.

Gus.

---------
REVOLUTION BARS GROUP PLC ("REVOLUTION")

DIRECTORATE CHANGE

Revolution announces that Mark McQuater, Revolution's CEO, has resigned from the Board and will be leaving the business with immediate effect.

Keith Edelman, Revolution's Chairman, will assume the role of Executive Chairman until a suitable replacement for Mark McQuater has been found. Further updates will be made in due course.

Commenting, Keith Edelman said:

"On behalf of the Board, I would like to thank Mark for his contribution to the success of Revolution. The business and brands have grown and developed over his four and a half year tenure as CEO and the business is well positioned for its next period of growth. We wish him well for the future."

simoan

As part of the Revolution Bars (LON:RBG) fall out the CEO has resigned with immediate effect. I wonder if he jumped or was pushed ...? Chairman has taken over as interim Executive.

And just to rub his nose in it the share price has hardly budged!! I don't see this as a bad thing as one of the things I liked least about the company was the management and now both the CFO and CEO will have changed. Given the poor cost management that caused the profit warning and the poor way the Stonegate offer was handled by the company, I don't see this as a big loss.

I'm sure the large shareholders that rejected the offer have been on the phone to the Chairman and that is the reason for him going.

All the best, Si

paraic84

Re dotDigital (LON:DOTD) we use their dotmailer programme at my company and I've spoken to our marketing team that use it. They absolutely love it and say it's the best software they've used. They also said the company massively undercut the competition on price when they signed a contract this year. They are a high performing team so I respect their opinion on this. dotDigital (LON:DOTD) has passed me by somewhat so I'll have to look into it properly now.

I am not sure email will be moribund yet. A lot of businesses and membership organisations use it as a cheap form of marketing and as a way of keeping in touch with customers or supporters.

xxx

Paul,
re: cloudcall- 'No. shares: 20.1m before Placing, +3.963m new shares = 22.56m after Placing'

Is Jeremy Corbyn at the wheel ? or is this the post lunch seshun...

Geester

The graph/logic shown in the Minervini style graph is straight from the Stan Weinstein playbook (who influenced Minervini), and Weinstein, in turn, took this straight from Richard Demile Wyckoff who spotted this trending style prior to 1930.

Small Cap Value Report (Tue 17 Oct 2017) - RBG, CALL, DOTD

Revolution Bars (LON:RBG)

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Paul Scott

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