Small Cap Value Report (Wed 26 Feb 2020) - RBG, MCLS, AVG, AUG, ESL

26th Feb '20 by Paul Scott

40 comments 8996 reads

Good morning, it's Paul here with the SCVR for Weds.

Apologies for yesterday's report fizzling out, I'll finish it off later & flag here when that's done.

Please see the header for today's announcements that I'll be covering. Although I want to get through these quickly, so I can spend time on the more interesting companies that I didn't get round to covering yesterday.

Estimated timings today - I've earmarked the whole day for SCVR-writing, so this & yesterday's report should both be finished by 5pm.
Edit - change of plan, I have to nip out mid-afternoon, so will have to wrap things up here by 2:30pm.
Update at 14:19 - today's report is now finished.

Revolution Bars (LON:RBG)

Share price: 71p (up 4%, at 09:10)
No. shares: 50.0m
Market cap: £35.5m

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

Interim results

This is a UK-based premium, late night bars group, trading as Revolution, and Revolucion de Cuba (the latter targets a slightly older demographic than the main brand). It currently has 74 branches.

There's a neat summary at the start;

Like-for-like² sales positive, Adjusted¹ EBITDA higher, debt reduced, on track to meet expectations

Background - I've written a disproportionately large amount about this share in recent years! We had the excitement of a 203p cash takeover bid for the company in autumn 2017, which then fell through. The share price lost two thirds of its value by the spring of 2019, and flat-lined for the rest of the year. Recent signs of life have been snuffed out by coronavirus worries - investors worrying that people may not want to congregate in close confinement, in say aeroplanes, cruise ships, bars, etc. Such worries are bound to hit shares in pubs/bars/restaurants, as well as travel companies, which they have. After all, it would be difficult to drink in a bar, with a face mask on. Even less chance of pulling too!

Given that RBG serves a mostly younger customer base (people in their twenties & early thirties), and given that coronavirus is generally mild for that age group, then I wonder how much of a deterrent it might be to them going out on a Friday or Saturday night (which is when RBG makes its profit)? The way things are going, we'll probably find out…

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Trident

26th Feb '20

Re Revolution Bars (LON:RBG) I don't see any reason why non-alcoholic cocktails shouldn't also be a attraction to younger folk if the atmosphere makes its an attractive place to meet up.

As long as they concentrate on both elements of the venue, and the drink/food, offering there could be a future.

Pleased to see general debt coming down. Obviously Coronavirus is an issue, but have heard that a level of alcohol in the bloodstream helps defeat viruses, though I may have dreamt that one! ;-)

jonesj

Ramsdens Holdings (LON:RFX)

Short term, there must be a fall in forex volumes due to reduced travelling.

Medium term, presumably it recovers ?

Long term, contactless payments take over and the forex business shrinks? I've already been forced to make some transactions with cards in EU countries and contactless seems on the way to being universal, just like in the UK.

Zipmanpeter

Non-alcoholic cocktails are attractive but, as my daughter does, you nurse them all night after you have taken your social media shot, remembering how expensive they were and that you have work/go to lectures next day and that you have no money saved.

Alcoholic cocktails on the other hand go down faster and faster until someone (the non-alcoholic group member?) remembers it is time to go home or their turn to buy.

This shift may still result in a great evening out but less cash across the till in a Revolution.

Most investors/stockopedia readers including me probably grew up in a drinking culture but I think the world is changing on this ......and so much more . Did you see that setting up "pug cafes" was an operational success called out by Revolution Bars (LON:RBG) . I had to look that up to see if it was a euphemism but it seems not !

Paul Scott

I've not had flu for 20 years, so maybe there is some truth in that?!

How interesting, I've not heard of Pug Cafes, just googled it - nice idea!

There is a cat cafe in Bournemouth, called "Pause". Rescue cats mingle with you, as you sip your coffee, and possibly have a biscuit. That reminds me of the Dame Edna gag, that the floor was so dirty with cat hairs (at her daughter Valmay's house) that she dropped a custard cream, and picked up a coconut slice!

I glanced at Pause Cafe the other day, and saw quite a handsome young man sitting on a stool in the window, and he was licking a cat! Yes, he was licking the cat, not the other way around! Most peculiar!

Rusty2

Does Ramsdens trade under a different name for it's forex because I have never seen it on comparison sites when looking for currency. That maybe the case for Europe about contactless but in Asia cash is still king in many countries, they don't even use credit cards much and when you do there are often fees. I have bought currency in the UK because now the rates are more competitive and certainly for countries such as Japan rates are better. Problem is the margins for forex dealers must be shrinking? Now you can get within 1-2% of market rates, not much profit left.

Just checked a sample of Ramsdens rates and they are not very good.

yamaha865

I dont think Ramsden's and H&T are targeting the most financially sophisticated customers, to put it mildly :)

maxwright

I have been to the Pause Cat Cafe, it is great fun and some of the cats are incredibly skilled, especially the one who "plays" the piano, ok, he jumps on the keys!!

Yes that maybe so but I feel this is not a growing market. People are moving away from the high street changers, as you can buy at better rates online, with free delivery, if you order over £750. Cards or online banks such as Starling are becoming more widely used as well.

I see H & T (LON:HAT) fell to 315p earlier today, I would have topped up if I had been watching.

Mrken

Maybe of interest to ' IHT AIM holders'
The Daily Mail website was yesterday suggesting that the Chancellor was looking at closing this loophole in the upcoming budget in respect of 'IHT tax avoidance '.

Good news is the US markets are up.

and they wonder about diseases leaping the species barrier! Get ready for human Cat Flu!

Martin Verlaine

Two of my watch list reviewed. My thoughts on Augean are I like the business but agree that landfill tax issue and its consequences remain an issue I want to see resolved. This is a very long-standing and why it cannot be resolved I am unclear. At HMRC interest rates on unpaid tax it should have been obvious to pay before. HMRC are very aggressive on land fill tax collection. Remains a cloud over the business.

Revolution

I like the new management approach and what has been achieved so far. I think as a business it needs to be more differentiated to capture the mood of younger people i.e that drinking less alcohol is a trend that will grow. So you need to look at capturing them for an evening in other ways. This is relevant given the increase in Minimum wage is an impact on staff costs Events to suit the Instagram generation and some tip towards climate change initiatives would be my thoughts. I am more negative on the idea of 25 years leases. That is a lifetime in retail terms which may come back to bite.

Still not a holder but interested from the sidelines

Re Revolution Bars (LON:RBG) leases - note that they were already in existing leases with about 13 years left to run. So they've geared up to 25 years, so only 12 additional years - all on sites that they already operate from, so know trading inside-out. This deal enabled the landlord to then release them from other sites which were burning about £1.2m p.a. So it was a bit of a no-brainer, I would suggest. They wouldn't sign 25 year leases on any other sites. I understand that 15 year leases, with 5 yearly break clauses is there policy.

Another issue with Min Wage, is that whilst it might cost RBG about £2m p.a. I calculate, it will also mean their customers will have considerably more disposable income. Therefore, it should end up back in the till!

jonno

Hi Andrea

The recent acquisitions made a negative contribution to the bottom line.

Booth Industries and Energy Steel contributed H1 losses of £0.2 and £0.7 million respectively and negatively impacted margins.

brileen

Hi Paul

Fascinating read. Thanks for your work today found it really useful. As a result I have decided it would be sensible to kick Augean further down the track and have a closer look ,not for the first time, at RBG which will involve a couple of personal visits.

abtan

Re Revolution Bars (LON:RBG) which I optimistically hold...

To add to the excellent comments here, I thought I would direct interested parties to the presentation released today by the company on their website:
https://www.revolutionbarsgrou...

This is an excellent supplement to today's announcement and it's a shame that they don't highlight it. Included you'll find

how each individual refurbishment is performing vs sales uplift hoped for,
all work streams + stage of completion,
more specific detail on cash flow,
LFL movements - by month - vs industry
lots of other useful information

As an aside, I continue to think the business is grossly undervalued relative to the cash generated. As another poster alluded, "adj" cash flow for 6 months was around £3.5m (a period that didn't include New Years) and the current EV = £42m

Hopefully they'll actually have clean figures one year, at which point the share price will finally re-rate.

Fingers crossed.

Mya Mary

28th Feb '20

This comment is under review

2nd Mar '20

Mya Mary - If you are a real person making a real offer for loans - please stop!

This well mannered , orderly community that is free from advertising (except perhaps some well expressed share ramping/bear attacks or invitation to Stockopedia seminars!)

Since this is now a paid for space, you must have/should have paid paid a subscription. If so, no doubt the IT police from Stockopedia will be looking very closely at your activity to check for site compliance!

3rd Mar '20

What a week! However, coronavirus hysteria has dropped Revolution Bars (LON:RBG) to as low as 56p and is even now 59p. This has dropped the price another 17% on price in Paul's summary above at 71p - bad news for a 'rabbit' caught in the headlights short term but having not sold I am now certain to hang on to my shares.

In 12M, and after I hope a good summer, corona virus will most likely be behind £RBG. Whats's more the peak will be in Feb/Mar when nightclub / bar turnover is lowest anyway so losses below expected will be minimised.

At this point, this is surely going to look like a good recovery share. So I guess I have now turned into a trader in this share!

Small Cap Value Report (Wed 26 Feb 2020) - RBG, MCLS, AVG, AUG, ESL

Revolution Bars (LON:RBG)

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Paul Scott

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