Small Cap Value Report (Tue 2 Oct 2018) - RBG, TET, SCS | Paul Scott

1st Oct '18 by Paul Scott

30 comments 11334 reads

Good morning,

This is what I intend reviewing today;

Revolution Bars (LON:RBG) (in which I hold a long position) - preliminary results

Treatt (LON:TET) - trading update

SCS (LON:SCS) - preliminary results

DX (Group) (LON:DX.) - preliminary results - sorry, I ran out of time, so didn't get round to looking at this after all.

Revolution Bars (LON:RBG)

Share price: 123p (down 1.7% today, at 10:16)
No. shares: 50.0m
Market cap: £61.5m

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

Preliminary results

Revolution Bars Group plc ("the Group"), a leading UK operator of 76 premium bars, trading under the Revolution and Revolución de Cuba brands, today announces its results for the 52 weeks ended 30 June 2018.

Where to start with this?! This is a classic case of a share where some investors will see negatives, and others (including me) see a turnaround opportunity, with the negatives already priced-in to the share price.

Larger competitor, Stonegate, tried to buy RBG last year, with a 203p recommended cash bid. Very unusually, RBG's larger shareholders then turned down this bid, as undervaluing the company. I'm struggling to think of that happening before, as recommended bids are not usually recommended, unless management has agreed the terms with major shareholders. So a very unusual turn of events.

Negatives

Why has the share price slipped so far down, from the 203p cash bid approach last year, to only 123p now? Partly it's the bid premium coming out of the price of course. But also, here is a list of the things that have gone wrong in the last year;

Management distraction from Stonegate (and Deltic) bid approaches - this is a perfectly valid point in my view - business is bound to suffer, if a small management team is spending a lot of time handling a takeover bid & other approaches.

Lack of leadership - the outgoing CEO (mark McQuater) left on 18 Oct 2017. The new CEO (Rob Pitcher) joined on 25 June 2018. So that's over 7 months without a proper CEO. Again, for a smallish business, that's bound to…

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Effortless Cool

2nd Oct '18

I'd be interested in your view of DX (Group) (LON:DX.), Paul. Preliminary results this morning show a large, but much reduced, loss and a significant reduction in net debt. The outlook statement is relatively optimistic.

https://www.investegate.co.uk/dx--group--plc--dx--/rns/preliminary-results/201810020700045937C/

Turnaround opportunity or basket case?

MrContrarian

My morning smallcap tweet: Revolution Bars serves mixed cocktail.

Pennant International (LON:PEN), Tekcapital (LON:TEK), SCS (LON:SCS), DX (Group) (LON:DX.), Revolution Bars (LON:RBG)

Pennant (PEN) wins £10.2m Middle East order. Performed over the 2018, 2019 and 2020 FYs.
Tekcapital (TEK) placing at 7.5p, a 12% discount. " significant amount of the Placing will be utilised to expand Tekcapital's commercialisation of their investment portfolio of businesses."
ScS (SCS) FY ahead of market expectations. Rev up 1%, EPS 26.8p up 14%.FY div 16.2 up 10%. Trading: Sales order intake up 2.1% LFL for the 9 weeks to 29 September. Group trading in line with the Board's expectations.
DX Group (DX.) FY slightly ahead of market expectations. Rev up 3%, EPS -8.1p (-40.3p). Net debt £1.1m (£19.1m), ahead of market expectations. Current trading encouraging.
Revolution Bars (RBG) FY as guided. LFL rev -0.6%. EPS -5.7p (+7.7p [restated]). Adj EPS 13.p (14.6p [restated]). Div 3.3p (3.3p). Recent LFL -5% "but benefits of new initiatives put in place by new CEO yet to work through". Pre-booked Christmas sales up 20.3% (LFL 14%). I hold.

Brookeda

I seriously don't know what to make of Revolution Bars (LON:RBG)
the LFL declines seem to be accelerating and yet we are told Christmas bookings are up 20%.
The adjustments made especially to opening costs are very questionable as presumably they will need to refurbish some of the older ones soon (does that come out as an adjustment also?) The acquisition costs are strange given they were the company being bid for and there doesn't seem to be a lot of detail around the nearly 7m of impairments on leases. We've been told about the food move now for over a year and there's a wonder whether that will ever happen.
I still hold but have less conviction than ever

FREng

The market has marked Burford Capital (LON:BUR) down 7% to the oversubscribed placing price, which on an 11bps spread gives PIs a chance to participate. I shall do so.

doug2500

I'm not surprised to see Treatt (LON:TET) down 5% this morning.

There's nothing wrong with the TU, just inline. But the valuation was pretty full previously IMO.

Personally I can see the potential for the figures to take a wobble with all the investment going on, at which point the price may also wobble and I'll be there!

GrahamF

I can’t help feeling that Revolution Bars (LON:RBG) are still one of the lame ducks of the drinking venues. The class act for cocktail bars seems to be the unquoted Be At One chain that seem to have no problem growing in the current environment. No wonder Stonegate decided to buy them from their private equity owners earlier this year.

http://www.piper.co.uk/our-brands/be-at-one/

(No position long or short)

rmillaree

Revolution Bars (LON:RBG)
This is morphing from a nice simple self funding rollout business to something more sketchy.

Lets look at the current and non current liabilities - at 31/7/16 the total was £26 mill at 31/7/2017 the total was £35 mill and at 31/7/2018 £52 mill - anything other than a self funding rollout. Ok there may be some legitimate reasons partly explaining the difference (onerous lease provisions) - but the trend is very poor factoring in the backward trend in profits and cash being generated.

There is nothing at present that would make me want to buy back in here despite the lowly shareprice.
Hopefully for holders the new CEO can work some magic and reverse the poor LFL's - having sampled the bars i would still have hope in the basic business plan if they can execute.

andrea34

I'm very interested in your opinion on the finals from Revolution Bars (LON:RBG) Paul, as you hold (I don't).

To me these look terrible - they are blaming all kinds of things, including the weather and the world cup! That seems really odd, considering EI (LON:EIG) (which I do hold) reported very good figures boosted by the world cup. It has me all confused... and with a current lfl of -5.3% I won't be going anywhere near them. But perhaps the long-awaited predator will take the opportunity when the price drifts low enough to take them out. I found this statement quite amusing "This is a fundamentally good business which has seen significant disruption over the past year and factors outside of its control" - doesn't a business have to adapt to the environment?

Wol

Any chance of a look at the National Milk Records (OFEX:NMRP) final results? Will their divorce from the pension fund leave a profitable and growing business?

Trident

Regarding Revolution Bars (LON:RBG) I wonder if the new CEO has kitchen sinked the exceptionals whilst he has the chance of being called a new broom, and this may flatter future comparable periods, and allow him to give an upside on H1 18/19.

Its good that the Christmas bookings are up quite a bit. They still have a bit to do on the food side, and the staff rostering software does not appear to have been implemented well. But this may be down to a period of drift with now CEO.

Looking forward to Paul's take on things.

Small Cap Value Report (Tue 2 Oct 2018) - RBG, TET, SCS

Revolution Bars (LON:RBG)

Negatives

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Paul Scott

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