Small Cap Value Report (Wed 7 Mar 2018) - RBG, RTN, BQE

7th Mar '18 by Paul Scott

64 comments 20012 reads

Good morning, Paul here!

Apologies for yesterday's report being late - it's now finished, and covers results from;

A fairly detailed look at Luceco (LON:LUCE) and its latest profit warning. Is it a buying opportunity, or should we follow the excellent conclusion of Stockopedia's brilliant 2016 profit warning analysis, by selling first and asking questions later?

Q3 results from Begbies Traynor (LON:BEG) - (I am long)

LoopUp (LON:LOOP) results

Headlam (LON:HEAD) results.

Anyway, to get you started today, here is the link to yesterday's report.

I'm having insomnia issues at the moment, so got up in the middle of the night to write it. Not ideal, but there we go.

Also, please could readers kindly try to avoid having spats in the comments section? It's rather tiresome when that happens! Many thanks. Although I must admit that one (now former) reader flouncing off yesterday (I couldn't work out why), with his parting shot being to tell us that 99% of us are clueless, which gave me the best laugh of the day!

Revolution Bars (LON:RBG)

Share price: 148p
No. shares: 50.0m
Market cap: £74.0m

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

Brief comment

I've been wading through the reader comments for yesterday, and quite a few people want me to comment on recent results from Revolution Bars. I was quite pleased that Graham was working that day, as people already know that I'm bullish on the company, so thought it would be interesting to get Graham's take - which I can probably summarise as being lukewarm, at best!

I'm sure you've already worked out that Stockopedia gives Graham & I complete freedom to write what we believe to be true, at that moment in time, on all companies. We don't confer, or go soft on stocks that the other (or anyone else for that matter) happens to own. In any case, I welcome bearish views on stocks that I hold, as it makes me think more, and question whether I'm right or wrong.

There isn't time at the moment to write anything detailed on RBG, but to give you my…

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Damian Cannon

8th Mar '18

Abstruse this stuff may be xcity but I think that the level of discussion shows how easy it is to misunderstand these type of adjustments. As Phil alluded to in his article the real issue behind the impairments/provisions is that some of the Revolution Bars (LON:RBG) bars are trading at a loss and this is a real change to how the group looked a year or two ago. Throw in some confusion around the assumptions and judgements being made and you have a bit of a muddle for investors.

NB the section that you included around bar opening costs makes me feel more than ever that these are far from exceptional. For Revolution Bars (LON:RBG) they are always going to have some bars which aren't open and some staff who have been recruited (and are being trained) and yet aren't bringing in revenue. It's just not possible to have 100% utilisation. Next they'll be excluding costs associated with staff who are on maternity/paternity leave?

rwalford

I note Paul's slightly adverse comment about Christopher Mills: whilst I hesitate to disagree, I have been an admirer of Christopher Mills for some years and have followed him in to Bioquell (LON:BQE) as well as into North Atlantic Smaller Companies Inv Trust (LON:NAS) MJ Gleeson (LON:GLE) and EKF Diagnostics Holdings (LON:EKF)
These have all been rewarding experiences: at least 100% up on all 4 of the above mentioned (and 350% up on MJ Gleeson (LON:GLE) ). I still hold all of these (although I have a rule to top-slice when a share has doubled).
I would therefore suggest that having Mills on the Board is rather a positive, not a negative.
Best regards to all,
Richard

simoan

As Phil alluded to in his article the real issue behind the impairments/provisions is that some of the Revolution Bars (LON:RBG) bars are trading at a loss and this is a real change to how the group looked a year or two ago. Throw in some confusion around the assumptions and judgements being made and you have a bit of a muddle for investors.

Damian,

I don't really see any muddle. The previous CEO and CFO (both of them!) were useless and you are always going to get a kitchen sink job under new management, particularly with a fresh set of eyes on the accounting side. I'm happy to accept most of the adjustments for now and see how things progress going forward.

I found Phil Oakley's article interesting for the general discussion on statutory vs underlying results, but as others have pointed out, he has plainly got some things wrong or made assumptions with regard to Revolution Bars (LON:RBG) and if you're going to write with such authority on a specific subject and make accusations that the board have massaged the accounts to get their bonuses, then you're verging on libel. I think he's sailing pretty close to the wind myself.

I have no idea why so many people waste so many words on Revolution Bars (LON:RBG) - it's a historically badly managed and mediocre business that's on a mediocre rating that doesn't have much debt - it's not going to go bust. I assume all these words are due to Paul having a well publicised long position and people are just sniping at him using Revolution Bars (LON:RBG) as a cover. I find it all quite pathetic to be honest, let's spend our time discussing more interesting companies.

All the best, Si

-3

rhomboid1

Hi Simon

‘I have no idea why so many people waste so many words on Revolution Bars (LON:RBG) - it's a historically badly managed and mediocre business that's on a mediocre rating that doesn't have much debt - it's not going to go bust. I assume all these words are due to Paul having a well publicised long position and people are just sniping at him using Revolution Bars (LON:RBG) as a cover. I find it all quite pathetic to be honest, let's spend our time discussing more interesting companies.’

I’ve never seen you write something that I disagree with more, I like & respect Paul , I dislike & would never invest in Revolution Bars (LON:RBG) I’m quite capable of seperating the two ..and so are a lot of other people

Hi Simoan,

Thanks for the thoughts. Without wanting to over-prolong this thread it's fair to say that I'm only commenting because I used to be invested in Revolution Bars (LON:RBG) (bought before the profit warning, doubled up when trading seemed to have stabilised and sold out just before the bid deadline) and have some interest in the company. I also happen to think that this is an excellent case study which a lot of readers are familiar with - so it's worth going over its accounts presentation.

On the muddle front my point is simply that accounts with adjustments, provisions and impairments are hard for the part-time, non-expert investor to understand. The additional moving parts add complexity and make it hard to pin down the performance of the underlying business. For sure the company can't avoid some of this complexity as the new board clear the decks but it doesn't help.

Anyway who knows what will happen. With luck Stonegate will reappear with a 250p cash offer and everyone will be laughing!

Damian

xcity

I don't see how any of the Revolution Bars (LON:RBG) comments can be construed as a comment on Paul's position. He's more than capable of analysing the exceptionals and his comment on the onerous leases was simply that it was all to the good because it would make future profits look better.

I do have a problem with some current accounting standards and some companies use of them because they make it very hard for novice, naive or time-poor investors to really get a grip on what is going on. And in the cases mentioned also seem to make it difficult for the companies' accountants to work out the figures correctly.

I’ve never seen you write something that I disagree with more, I like & respect Paul

I was merely speculating on why a rather mundane and badly run business gets so many words written about it, that's all. If Paul didn't write about it here so often would anyone else bother? I suspect not. It's popularity as an investment is purely down to Paul as far as I can see. Was it even discussed here before Paul first raised it?

I dislike & would never invest in Revolution Bars (LON:RBG) I’m quite capable of seperating the two ..and so are a lot of other people

I'm not sure why you've taken my comment so personally? It was a general comment as to why there are so many posts about such a mundane business that's trading poorly. It's not a fraud, it's not about to go bust and there are many better (or poorer if that's your want) companies to discuss. And yet here we are discussing it again. It seems from your post you have strong feelings and emotions towards Revolution Bars (LON:RBG) which I find a bit strange tbh, particularly if you have no position. Sorry if I've got your back up, it was not intentional.

Hi Si
I’ve taken it personally because you made it so..by telling me that my ( & others) negative posts on Revolution Bars (LON:RBG) were a smokescreen for having a pop at Paul!

Anyhow the reason it gets so much comment is that they are an interesting business to dissect, for me it has added interest because Paul likes it ..& I don’t.

cheers

Jonathan C

Paul, thank you for your helpful analyses, which do much to make Stockopedia a valuable resource.

I have a normal policy of not investing in retail businesses, including retail eateries, because of their fickle and over-extended customers. I have therefore passed over the comments on Revolution Bars etc to look at Bioquell (LON:BQE), which at first glance is attractive to me because its customers in the life science and health sectors give the business defensive qualities.

The company has intellectual property (a quick search revealed 3 granted US patents), and the IP may - or may not - give rise to a real defensive moat. It would be nice to see operating margin rising to validate the defensive moat hypothesis.

In 2014/15, the company sold a significant part of its then business for £33.6 million, and the 2016 annual report says: "Strategic review concluded; management restructured and focus on further development and improvement of bio-decontamination business". The increase in revenue from 2016 to 2017 suggests that the strategy has been successful but, because of the change of business focus, historic trends are not available to be analysed.

Paul says that net cash is 20% of market cap, presumably leading to a cash-adjusted share price of 266.4p and a cash-adjusted trailing PE ratio of 27. (Is that a meaningful calculation to undertake?). Even at this price, the PE ratio is too high for me, especially as the absence of a long comparable track record makes future performance particularly speculative.

One for the watch list.

Paul Scott

9th Mar '18

All the analysis on Revolution Bars (LON:RBG) by me, Phil, and everyone else, is just background noise.

All that matters, is a competitor (Stonegate) bid 203p cash for it recently. That means it's worth at least 30% more than 203p. Otherwise Stonegate would not have bid.

Nothing else matters. This is free money, in my view - just a question of when. I'm up to 300k shares now, and am buying more at 150p. DYOR obviously.

P.

Hi Si
I’ve taken it personally because you made it so..by telling me that my ( & others) negative posts on Revolution Bars (LON:RBG) were a smokescreen for having a pop at Paul!

I'm sorry but I quite clearly addressed my question to Damian (in reply to his post) and I did not mention you or anyone else by name. How can you possibly take it so personally? I think you need to maybe re-read my post and consider why you replied in the way you did. And I didn't specifically refer to negative posts either just the number of posts. It seems for some reason you just took it as an excuse to attack me, so you're the only one personalising things.

Anyway, you can't possibly know that there aren't people out their with agendas, unless you believe everything you read on the internet? It's pretty obvious over the years there are a number of people who like bashing Paul and it's little wonder he wants to take a break. If you don't like what I write, then that's fine, but please play the ball not the man as I always try to do.

Hi Damian,

I also happen to think that this is an excellent case study which a lot of readers are familiar with - so it's worth going over its accounts presentation.

On the muddle front my point is simply that accounts with adjustments, provisions and impairments are hard for the part-time, non-expert investor to understand. The additional moving parts add complexity and make it hard to pin down the performance of the underlying business. For sure the company can't avoid some of this complexity as the new board clear the decks but it doesn't help.

I realise there is a level of interest in Revolution Bars (LON:RBG) here (mainly due to Paul) but IMO there are far worse and more egregious examples of the use of adjustments to numbers, and Phil Oakley had a great example with RPC (LON:RPC) who have been doing it for several years as he illustrated which also has a significant amount of debt.

And yet Phil turned his guns on Revolution Bars (LON:RBG) which has just had a change of management and so there is no doubt an element of kitchen sinking and a new CFO with maybe a more conservative approach - that's a good thing, not a bad thing! So what if the new management see things differently from the old who were clearly not very good? So to suggest the new management are trying to ensure they get their bonuses by massaging the numbers is a low blow and verging on libel IMHO. Phil can't possibly know that and as a respected commentator he shouldn't be saying things like that either. Maybe he has a bee in his bonnet on Revolution Bars (LON:RBG) for some reason?

Bonitabeach

"suggest the new management are trying to ensure they get their bonuses by massaging the numbers" - shame on anybody who would possibly think such bad bad thoughts!

"just had a change of management and so there is no doubt an element of kitchen sinking"

When does "kitchen sinking" become "massaging" or should I be asking when does "massaging" become "kitchen sinking"?

No position.

janebolacha

Yes, exactly, shameful to suggest that any of our fine and upstanding company managements could in any way possibly qualify for the Captain Louis Renault Award:

https://www.youtube.com/watch?v=1H-PS_pr-t0

I see the red thumbs are out which I find really childish. I've never liked the idea of likes, recommendations, thumbs etc. and hope that Stocko drop them as part of the changes. It discourages people from airing dissenting views and gives the upper hand to the crowd. I don't like crowds, never have, and have no interest in communicating in a kindergarten.

However, the crowd wins. I wish you all well. Goodbye.

-7

Come on Si lighten up, there is no requirement to be a latter day Captain Oates!

Red or blue thumbs do not win an argument or even represent a majority view and who said the majority are always right? You have opinions as do others, don't take it personally, this is not that kind of discussion board.

Have a good weekend and see you Monday for more fun and games.

15th Mar '18

Thanks for your concern.

When I first joined Stockopedia it was a much more tolerant place to contribute with like-minded investors. You hardly ever saw a post with red thumbs. It was like a village pub with a good community spirit. Nowadays, it's more like a Revolution at 1am on a Sunday morning, inhabited by too many ne'er do wells and "you lookin' at me" types with no bouncers on the doors. Not my kind of place at all. Anyway, this is my last word on the matter, and also my last ever post on Stockopedia.

-5

Effortless Cool

Well done, Si, you're going out in style.

A defeated gladiator condemned to death by the crowd.

Si
You’ll be relieved/not interested to note that none of your red thumbs came from me as an iPad running a Safari browser doesn’t allow me so to do..and if it did I wouldn’t done so as I find your views interesting & thought provoking.

I for one would be delighted if you continued to post but obviously that’s only a decision for you.

PS I still dislike Revolution Bars (LON:RBG) and like Paul & appreciate his views both here and on Twitter..Can’t do a smiley but would put one here if I could

9th Jun '18

I am very confident this is likely to be a big win, but no idea when - patience needed.

Hi Paul,

Re: Revolution Bars (LON:RBG) I assume you noticed the after hours RNS yesterday:

https://www.investegate.co.uk/...

Another shrewd investor (Keith Ashworth-Lord) has taken the holding up to 10% in his Buffettology Fund. The only collective vehicles I hold are Fundsmith but if I had to choose another it would definitely be this fund.

Small Cap Value Report (Wed 7 Mar 2018) - RBG, RTN, BQE

Revolution Bars (LON:RBG)

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Paul Scott

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