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

17th Oct '17 by Paul Scott

34 comments 14000 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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cholertonandrew

17th Oct '17

CALL- I suspect the Board has taken advantage of an increased share price to get away a cash call that I think would have been needed anyhow in the not too distant future. It’s nice to see it’s been done at what looks like a fair price and it should remove a source of uncertainty for private shareholders.

RBG- I don’t know too much about this stock but I was a bit surprised to see the takeover offer rejected. It did look like a fair price to me, although I may be wrong.

Regards,
Andrew

Richard Cockbain

Revolution Bars (LON:RBG) commentary: "The board remained confident regarding the underlying strength of the Revolution business and its ability to operate and grow as a standalone business.

Revolutions Bars announced it will fully focus on running the business, starting with the successful delivery of the important Christmas trading period."

MrContrarian

My morning smallcap tweet:

Batm Advanced Communications (LON:BVC), Hornby (LON:HRN), Cloudcall (LON:CALL), RhythmOne (LON:RTHM)

BATM Advanced Communications (BVC) has been awarded a proof-of-concept contract to be the main supplier of cyber monitoring and detection systems for a European defence agency. Worth $350k, paid end of Q1 2018.
Hornby (HRN) warns again as new CEO rules end to discounting large quantities of stock. Material hit to profit this FY.
CloudCall (CALL) placing of up to £5.7m at a small 5% discount "to capitalise on near term growth opportunities". Nothing to do with millions of cash going out the door every year.
Rhythmone (RTHM) H1 trading in line. Continued profitability on an adjusted bullshit earnings(1) basis. Fill your boots.

Note 1: bullshit earnings = EBITDA.

Brookeda

Paul

Would it be possible to open up the afternoon before the following days report so that people can post comments prior to you adding your report on things they have seen in the market?

Thanks
Dave

Out of range for this report but BP.Marsh and Partners (BPM) announced their interim this morning. (Which I am long)
NAV increased 24.6% YOY and now stands at 304p compared to 252p in the market. Its down 3% this morning probably as a result of profit taking and the companies desire to hold the dividend (rather than raise) the next couple of years to allow them to fund more investments which longer term makes sense to me given their strong pipeline of opportunities.

andrea34

Re BVC, $350k doesn't exactly sound very impressive for a contract size to me...

Paul Scott

Would it be possible to open up the afternoon before the following days report so that people can post comments prior to you adding your report on things they have seen in the market?

That's an interesting idea. Let me talk to Graham. So to make sure I've got your point, you're suggesting we publish a placeholder article the night before, so that readers can add comments on interesting RNSs the following morning, in advance of me or Graham writing the main report?

Sounds like a good idea to me.

Regards, Paul.

gus 1065

Hi Paul.

Not sure if it is technically possible, but it would be really helpful if contributors were able to add to the company markers that tag each daily thread. There are often some really good threads on companies that are not in the original title which do not show up on the individual company discussion histories. Not so hard to find in the short term but time consuming to track down after a few days have passed. Currently, I think it is only possible for the original author to amend these fields. Possibly one for Ed's techies to look into ....

Gus.

Hi Paul, I read you’d added to Cloudcall recently as the Company makes good progress. I just wondered out of interest whether you’d sold down for a period or whether you were further adding on top. I remember you being a big holder some time ago. Understand if you don’t want to comment, was just asking out of interest really.

I invested here too early but I think things look good at this point and I agree with you about some growth stocks reaching a tipping point-where investors go from worrying about whether they will make it to focusing more on the growth potential.

Regards
Andrew

GrahamF

"There's plenty to like here, but many investors remain resolutely determined to completely ignore the upside. It's so strange the way investors can sometimes just refuse to even look at the numbers, if they have a fixed opinion that they don't like a particular sector. That's what created the pricing anomaly here in the first place"

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 think you flagged that their food offering was poor over a year ago. But from what you're saying they've still not improved it. They're talking about their successive quarters of LFL revenue growth. "Revolution is proud that it has delivered 16 consecutive quarters of like-for-like sales growth". But I recall that growth was no more than equivalent to a small price increase when we were discussing the business some time ago. It all still seems that the management are in denial about their level of competence.

So, while the potential upside numbers may look good, if you don't already hold the stock you've got to second guess whether or not the management are capable of selling this business successfully. Many will conclude they would rather spend time on other companies that have less flaky management than buy into this. If you're already in it then that's a different matter of course.

Hi cholertonandrew,

It's complicated, because I run several portfolios personally & for my family.
So we held on to some Cloudcall (LON:CALL) in one portfolio (which were bought in a placing at 90p I think?) but ditched the spread bet positions in another portfolio, and held a smaller spread bet position in another portfolio.

So the portfolios I manage (which I loosely call my portfolio) have held Cloudcall (LON:CALL) continuously for quite a few years now, but the total position size has gone up & down quite a lot. We've taken much bigger long positions this year, since I perceive that a positive tipping point has been reached, so it's now, in total, about our 5th largest long position I think.

Hence why I had kittens when I heard last week that another placing was going to happen! As it's turned out though, the strong support from Instis means that it's worked out fine.

As regards BMUS, it's too complicated & time-consuming for me to add up all my family portfolios, and try to replicate it in BMUS. So I tend to just roughly mirror our main long positions in BMUS, and miss out all the long tail of smaller positions.

I only do BMUS because Ed challenged me in early 2015 to factually prove that my current stock-picking approach tends to work well most of the time, at least in a bull market.
Time will tell how BMUS performs in the next bear market - probably not very well, as I tend to be too optimistic by nature! It certainly cannot possibly keep performing as well as it has done in the last 2 years, so I think that has to be seen as an exceptional & lucky period of out-performance!

Regards, Paul.

Calahan

Hi Paul, any chance you could kindly cast your eye over £DOTD? You and Graham have covered them previously (February and July respectively), on both occasions giving generally favourable impressions. So would appreciate your (or Graham's if he's around) views on how things stand after today's final results.

nicobos

Hi Paul, I'd appreciate your view on dotDigital (LON:DOTD) if you have time? The financial year-end highlights seem good and shares have reacted positively:

Financial growth
-- Revenue up 19% to GBP32.0m from GBP26.9m
-- H2 growth up 21% compared to H1 17% growth
-- EBITDA of GBP10.1m, up 26% from GBP8.0m
-- Profit before tax up 30% to GBP8.1m from GBP6.2m
-- Net assets up 21% to GBP28.6m from GBP23.7m
-- Earnings per share has increased by 32% to 2.42 pence from 1.83 pence

Been watching from the side-lines for several years as always seems expensive, but maybe now is a good time to take a position !?

Thanks

N

sharw

Strange indeed. The proxy figures published after the closing date were consistent between the two meetings. Any votes added to those would have been by persons actually present at the meeting this morning. The proxy list shows 48 voting and the final list 50 so that is just 2 shareholders who cast votes this morning.

It would appear that both of these voted against the scheme at the Court meeting and then for at the EGM. To even hold the second vote was pointless as the scheme was by then lost - I seem to remember a similar situation where the second meeting was just postponed indefinitely.

The number of shares involved - around 4.4m - was substantial. The nearest is River and Mercantile with 4.45m - were they present this morning?

It is also inconsistent that 14,114,415 shares were voted for the scheme by proxy and 13,874,369 this morning. The registrars either voided some or got their sums wrong.

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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