Small cap Value Report (Tue 3 Oct 2017) - RBG, SIV

Tuesday, Oct 03 2017 by

Good morning, it's Paul here!

Many thanks to Graham for producing excellent reports last week & yesterday. This enabled me have a stress-free holiday in Dubrovnik, Croatia. What a beautiful, unspoiled place! If you haven't been, then I highly recommend it.

Revolution Bars (LON:RBG)

Share price: 210.6p
No. shares: 50.0m
Market cap: £105.3m

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

Preliminary results - for the 52 weeks ended 1 Jul 2017.

This is a UK premium bars chain, with 2 formats, "Revolution", and "Revolucion de Cuba".

The figures are only really of passing interest, since an agreed 203p cash takeover bid from Stonegate (a fairly large, acquisitive pubs group) is now well-progressed. The share price has stuck at around 210p, so clearly the market is factoring in the possibility of a higher, competing bid. The only other player we know about currently, is nightclubs operator, Deltic. They have issued a number of RNSs, saying that the Stonegate bid undervalued Revolution (correct, it does - I think Revolution could be worth up to 300p/share if a number of rival bidders got involved - it stacks up on a EV/EBITA multiple at that level, once duplicated central costs are stipped out). So this is a situation where Revolution is worth more to a trade buyer, than to a financial buyer, such as private equity.

I've looked through its accounts, and Deltic does not look a particularly credible bidder - it doesn't have any money to make a cash bid. So it would need to raise cash from somewhere. It's possible that Deltic's shareholders might have deep pockets, independently of Deltic, who knows? Their announcements to date indicate perhaps not. They're pushing for a merger. I don't see there being any appetite for that. The market just dislikes bar groups - there's widespread indifference or distrust of them.

Note 1 outlines prior year adjustments made by the new FD. This reads like a catalogue of errors. It is now abundantly clear that RBG had a pretty hopeless finance department, which just wasn't up to the job - hence the profit warning in May, which was caused by poor budgeting. The new FD seems tons better. In a meeting with him earlier this year, he was clearly on top of the job &…

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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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Kin and Carta plc, formerly St Ives plc, provides digital transformation services internationally across United Kingdom, Europe, the United States of America, South America, and Asia. It helps clients invent, operate, and market digital products and services. Kin and Carta consists of strategic consultancies, such as Pragma, Hive, and Incite; digital innovation firms, such as TAB and Solstice; and communications agencies, such as Edit and AmazeRealise. The company helps organizations capitalize on technologies to develop products and services to market. It serves healthcare, financial services, transportation, industrial and agriculture, retail and distribution, and other sectors. more »

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

25 Comments on this Article show/hide all

Vrod 3rd Oct '17 6 of 25

Paul, has anybody looked at Air Partner (AIR) folowing the rcent interim results. They are now a 'Super Stock' on Stockopedia with a ranking of 98.Best wishes

David Lawson

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iwright7 3rd Oct '17 7 of 25

In reply to post #224693

I like the look of Air Partner (LON:AIR) too - Its been under the radar (pun) - Can anyone see anything not to like? Ian

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Vrod 3rd Oct '17 8 of 25

Its been a favourite of Lord Lee who writes in the FT. £1m + ISA fund articles

Stock Rank and classifiction - super stock - suggests it might be due for a 'soar into the clouds for a flight' (pun). Previous high 255p in June 2007. Declare thatI have a holding where I am up over 100% so far. David

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ACounsell 3rd Oct '17 9 of 25

Sold out of Air Partner (LON:AIR) when hit trailing 20% stop loss - inevitably gone up ever since no doubt helped by problems with airlines (Ryanair) & need to charter planes to get Monarch customers back home. Mood not helped as sitting in Rome airport waiting for a BA flight to Heathrow delayed by about 2 hours!! Really do wonder about stop losses for small cap stocks - always seem to bounce back.

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FREng 3rd Oct '17 10 of 25

Air Partner (LON:AIR) has been a long term favourite of Lord John Lee, and still is:

It may be worth checking that it's not owed money by Monarch Airlines.

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andrea34l 3rd Oct '17 11 of 25

In reply to post #224703

Re. AIR, I'm not an accountant, so I don't know whether this is significant, but I wondered why the "Other Liabilities" have more than doubled since end-of-year and why deferred income has risen so much in 12 months too. Other than that, I suppose the only concern is that the trading is slightly mixed.


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iwright7 3rd Oct '17 12 of 25

In reply to post #224733

I have just been though Air Partner (LON:AIR) numbers and the 2 standout numbers for me are a ROIC of 280% and net gearing of -93%.   Rankings have improved SR +11 to 98, M +20 to 94. Looks like they are developing a MOAT. The circa 4% spread is not so great, but could make that up in 2 days of gains. Just brought an initial holding. Ian

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simoan 3rd Oct '17 13 of 25

In reply to post #224743

I have just been though Air Partner (LON:AIR) numbers and the 2 standout numbers for me are a ROIC of 280% and net gearing of -93%. 

You need to be very careful on the StockReport net gearing number for Air Partner (LON:AIR). I believe a large amount of the cash they hold is for their Jet Card scheme, so it is not really cash that is available to the company for operational purposes. It's not a company I follow but this was the case when I last looked at it.

All the best, Si

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timarr 3rd Oct '17 14 of 25

In reply to post #224753

That's correct. At the interims £18.2 m out of the £28.8m on the books were on JetCard. It's still got net cash to the tune of £10.6m, the balance sheet looks rock solid. As for Monarch, I've no idea, although Air Partner used to charter aircraft from them.

I hold, and have done for quite some time but the business can be quite cyclical.


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purpleski 3rd Oct '17 15 of 25

In reply to post #224733

Hi Andrea

I hold Air Partner (LON:AIR) and have done for five years and having bought 9 Times over that period and personally think it deserves its superstock status. I intend to continue to hold but I would be grateful if you could point me in the direction of the figures you quote just so I can have a look and try to understand why.

Thank you.

Kind regards

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Paul Scott 3rd Oct '17 16 of 25

I've not looked at Air Partner (LON:AIR) recently, as the sector doesn't interest me.
However, I covered the most recent full year results here:

In particular, that article explains the issue with cash, and why the EV needs to be manually adjusted to strip out customer cash.

Regards, Paul.

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shipoffrogs 3rd Oct '17 17 of 25

Air Partner (LON:AIR). One thing to watch is that they have fairly recently become acquisitive - that tends not to end well.

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iwright7 4th Oct '17 18 of 25

Its a good point about Air Partner (LON:AIR) clients cash effecting the valuation numbers.

I see that the AIR VM ranking score has gained +26 to 95 overnight as a result of this. Nevertheless if the Stocko metrics are calculating this outcome so are other widely used institutional databases resulting in a EV/FCF that looks remarkably cheap. Likely to result in more buying and therefore price appreciation. Could be confirmation bias on my part though!  Ian

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purpleski 4th Oct '17 19 of 25

In reply to post #224833

Hi iwright7

You might be right but in Air Partner (LON:AIR) ‘s defence they always make it very clear how much of the cash is JetCard cash in the financial reports, which is perhaps a good lesson: as a minimum always read the latest financial report and accounts before buying.


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andrea34l 4th Oct '17 20 of 25

In reply to post #224783


The figures that give me some food for thought that I mentioned for AIR are in the "Consolidated statement of financial position" section of the recent results.


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iwright7 4th Oct '17 21 of 25

In reply to post #224873


Re AIR - Yes - A bit too quick on this one.

My yesterday purchase was a small one and on reflection the return numbers are improving and the Mr Market seems to like whatever numbers they are looking at. From memory the price was up +2.4% yesterday and another +3.6% at the moment, so the spread is covered at least. Would I still buy today taking account of the clients money aspect - Yes I would a buy similar position, but not bet the house. Ian

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purpleski 4th Oct '17 22 of 25

In reply to post #224888

Hi Ian

I think if you hold through thick and then you won’t be disappointed with the investment. I am up 66% over the five years I have held (i have purchased 9 times between Oct 12 and Oct 16) and received 20% of the money invested back as dividends in the five years.


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purpleski 4th Oct '17 23 of 25

In reply to post #224718

Hi ACounsell

As I am sure know there are diverse opinions on Stockopedia about stop losses.

I personally don’t use them. I run a concentrated portfolio with low turnover with a five to ten year view. It is my belief that if the long term fundamentals of the company you have invested in and the reasons for the investment have not changed then a 20% fall is a reason to buy rather than sell. As Buffett would say “the company has just gone sale”. Mr Market is just having a particularly bad day.

Often a fall of this magnitude is caused by a profit warning or disappointing figures, in the markets view. As Paul has written here he views profit warnings as two types fixable and fundamental. If he sees the reason for the profit warning as fixable he does not sell but if something has gone fundamentally wrong with the story (£CRAW) he sells. For what it is worth I agree with him.

I don’t think not selling (you mention in this in another post) is letting emotion take over but analysing the reasons why a fall had happened and making a consider decision to hold, sell or accumulate.

A current example for me is Boohoo.Com (LON:BOO) which has suffered 20% fall after the recent interims. It is my largest holding (17.4%) of portfolio but I have not sold a penny. I am convince that in 5/10 years time BOO will be considerably ahead of where it is now and will have out performed most of the stocks in my investment universe. The only reason I am not buying more is that I think 17.4% is a large enough holding though any further significant falls and I will top up.

Hope this helps.


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VegPatch 4th Oct '17 24 of 25

In reply to post #224658

Hi Paul
You may not like this but I have voted against the deal.
Its not a huge position for me and I bought it around 115p. However there are so many businesses where shareholders get rolled over. So i have gone for the REJECT option

I guess i may be in the minority of 1...


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Andrew L 4th Oct '17 25 of 25

Paul - Just to say well done on Revolution Bar Group. I was a bit sceptical here but it pulled through in the end. Spirits are a growth area I think and they are exposed to that. There have been a fair few failures in this sector but Revolution might have a reasonable brand.

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 Are LON:RBG's fundamentals sound as an investment? Find out More »

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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