The Revolution Bar Group - What Now? Be Fearful or Brave?

Thursday, May 25 2017 by
16

Revolution Bars (LON:RBG)

Share Price 110.5      (1.3% down today)

Bid/Offer 110p - 111p

Market Cap £56.6 million

592720e9cc504Revolution_bar_white.png

Share Price Performance

The share price hit a new low during trading hours.  Many investors just could not take the pain anymore and stop losses are being triggered around the 110p mark.  A sensible course of action perhaps as the future like for like sales growth is now being seriously questioned.

Numis Broker Report

I have not read or do I have access to the recent Numis broker's report. The mere mention of a 10:1 profitability gearing to the downside due to 1% loss in sales revenue will send shivers down investors’ backs.  Is it just too pessimistic in linking 1% drop in LFL sales to 10% drop in profits?  Was this true in reverse when LFL sales were increasing?

I suspect the first 5% LFL sales drop if and when it does happen could be addressed relatively easily by internal cost control measures with little effect on overall profitability. This would require having (i)less staff on duty with reduced drink menu options, (ii) the prospect of better food offerings, and (iii) some marginal price increases in their bar prices to the affluent clientele. 

Previous Missteps

I am mindful that finally having sold my Fairpoint plc (FRP) at a recent low point, that purchasing plunging shares at knock down prices is a dangerous game to play.  Investors like myself hung onto the lack of news at Fairport plc as being mildly positive when others who were better informed were more fully aware that trouble lay ahead many months previously.  Historic printed profit forecasts were taken at face value. However, it was the falling share price chart told the truth.

The investment potential rewards should always be a multiple of the potential losses. There may not quite be enough reward here yet in Revolution Bar Group.  There is a further 50% near-term potential loss in the share price, particularly if LFL sales fall and likely to continue to slide. The upside initially can only be based on maintained profitability with an adapting business model. This could help bring us back above the 150p level.

While I rarely overpay for an expensive share on a high p/e, I have been known to buy apparent cheap shares on low…

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Disclaimer:  

All articles and comments are for general information only. No investment advice intended.

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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 »

LSE Price
64p
Change
4.9%
Mkt Cap (£m)
30.5
P/E (fwd)
8.7
Yield (fwd)
8.7



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83 Posts on this Thread show/hide all

gus 1065 10th Oct '17 64 of 83
4

So Deltic fall away and decline to pursue either a merger or make a cash bid. No real surprise - absent a sugar daddy to bank roll them they were always struggling to get a full seat at the negotiating table.

Not sure it's necessarily game over, however. Artemis hold 15% and professional traders such as Merrill and Man Group appear to have at least a further 20% if you tot up the recent RNS's. They may not be able to block a majority (50% + 1 share) bid but with less than 75% Stonegate wont be able to integrate RBG's business as freely as they would like. 203p was always a knock down price - something a little richer that pulls the professional blocks into line would still make good commercial sense. Let the horse trading begin!

Gus.

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VegPatch 14th Oct '17 65 of 83
2

Stonegate'S offer is its "final offer" according to its statement on 12th October.

Under rule 2.5 of the Code, this may not be increased, unless their is a counter offer. As Deltic have pulled out I think this is unlikely. So we are now left with a situation where Artemis with 10% have withdrawn support for the offer. Stonegate have tried to play hardball but I get the feeling that a number of people are cheesed off by Stonegates tactics and will vote no (I did). So at c197p there is 3% upside to a bid but probably 20% downside if the offer lapses. Poor deal management by Stonegate in my opinion. If they lose it from here they will look foolish and will have lost a good chunk of cash on M&A fees.

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gus 1065 14th Oct '17 66 of 83
1

In reply to post #228803

Hi Vegpatch - fully agree with your assessment and conclusion that Stonegate have annoyed a few people with their attitude. Just hope the II's stick with it although I suspect the Srb players like Man and Merrill's will possibly fold and move on to the next game now the offer is declared " full and final". Said as much on a different thread commenting on yesterday's two Stonegate RNS.

https://www.stockopedia.com/content/small-cap-value-report-thu-12-oct-2017-ehg-nxr-rno-rbg-227808/?comment=82#82

Have also voted against the offer.

Gus.

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gus 1065 16th Oct '17 67 of 83
3

A couple of RNS just out commenting on the level of proxy votes received for the Court Meeting and EGM. One from Revolution Bars (LON:RBG) , the other a response from Stonegate.

https://www.investegate.co.uk/revolution-bars--rbg-/rns/proxy-voting/201710161130027017T/

With just under half of the company share votes in, looks like a narrow majority in favour (about 55:45) but as I recall they need 75% to get the Scheme of Arrangement approved. Looks as though Stonegate are struggling (although a lot more votes yet to come in) and the Revolution Bars (LON:RBG) share price is off about 8% to the low 180p's. May have been a tactical mistake to have declared their offer "full and final". (Then again, this may well be all Stonegate really thought the business was worth).

Gus.

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Trident 16th Oct '17 68 of 83
1

If Stonegate comes back with a revised offer, maybe Deltic will try and trump it, as I believe a change in offer will allow Deltic to re-enter the bidding process.

We shall see in the next few days, as the scheme of arrangements doesn't look like it is going to pass.

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sharw 16th Oct '17 69 of 83
2

In reply to post #229088

...(although a lot more votes yet to come in)

Very unlikely - the proxy deadline has passed so somebody would have to physically turn up at 10 a.m. tomorrow at the meeting with authority to exercise the vote for 20,920,080 shares to get to 75%.

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dosh 16th Oct '17 70 of 83
3

A bit of a screw up by Stonegate in my view with their RNS of 13/10/17:
Stonegate has built its business by being a disciplined buyer of pubs and pub estates. Since creation, Stonegate has grown to over 700 sites and is the UK's leading drinks led licensed retailer. Stonegate is not willing to depart from the acquisition discipline that has made it successful. As a result, Stonegate declares its Cash Offer of 203p final (the "Final Cash Offer") and will not be increased, except that Stonegate reserves the right to set this statement aside in the event of a firm offer announcement to acquire Revolution under Rule 2.7 of the Code by another party which includes the payment of cash to Revolution shareholders.
Effectively rules them out of making an increased offer unless somebody else comes in and makes a bid over 203p.

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peterg 16th Oct '17 71 of 83
2

That's not necessarily a screw up though.

If they don't think it's worth paying more - and they are being disciplined, as you say they are - then surely saying it's final is a good move, otherwise they encourage RBG shareholders to try and hold out for more.

Peter

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gus 1065 17th Oct '17 72 of 83
1

As indicated by yesterday's proxy vote, the Stonegate offer received a simple majority approval but insufficient votes to approve the Scheme Of Arrangement. Accordingly the offer has lapsed.

https://www.investegate.co.uk/revolution-bars/rbg/results-of-court-meeting-and-general-meeting/201710171144128296T/?fe=1&utm_source=FE%20Investegate%20Alerts&utm_medium=Email&utm_content=Announcement%20Alert%20Mail&utm_campaign=Revolution%20Bars%20Alert

Immediate market reaction is for the shares to fall to about 170p. Nice opportunity for those that sold at 210p or so to buy back in if they want to (I am not one of them who sold). Interesting to see where the price settles and whether the past few months activity has taken Revolution Bars (LON:RBG) management's eye off the ball.

Gus.

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tic_tac_toe 17th Oct '17 73 of 83

In reply to post #229488

hi gus, i sold out before the price reached 210ish, selling at 190p, and as you suggest, i've re-bought at 168p today. the sell off seems irrational, as it is on the basis the shares are worth more, not less!

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simoan 17th Oct '17 74 of 83
2

In reply to post #229488

Immediate market reaction is for the shares to fall to about 170p. Nice opportunity for those that sold at 210p or so to buy back in if they want to (I am not one of them who sold). Interesting to see where the price settles and whether the past few months activity has taken Revolution Bars (LON:RBG) management's eye off the ball.

Must admit I'm a little surprised by the institutions not carrying the vote but not particularly bothered in the long run and happy to hold the 60% of my holding I didn't sell and take the 3.3p dividend in December. I agree 203p was cheap but any asset is only worth what someone is willing to pay for it and the market thought Revolution Bars (LON:RBG) was only worth just north of 100p prior to Stonegate getting involved.

I don't see any reason to rush to buy back the shares I sold right now. All the signs are that trading for bars and restaurants in September was dreadful, the headwinds are not going away any time soon, and as you say the management have been distracted for the past couple of months by the bids. I can see Stonegate returning with a higher offer at some point but believe they can't do that for six months unless another party makes a bid first. If there was one, I'm sure they would've shown their hand by now.

All the best, Si

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ambrosia 16th Nov '17 75 of 83

its dropped below 150 today, this has been mentioned several times as a trigger price, be interesting to see if it bounces

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vik2001 16th Nov '17 76 of 83

I saw it around the 145 price yesterday. but was to busy with other things

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paraic84 29th Nov '17 77 of 83

Anyone have any idea why this is up so much today? I can't see any relevant news at all unless I am missing an announcement from another company in the same sector? The volume looks quite low though so maybe best not to read too much into it.

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beatingmrindex 29th Nov '17 78 of 83
1

Castelton has increased their holding - I think there was a research note confirming its rating should be 260p released as well - and its undervalued. There some decent results by different operators and with Xmas coming while we still in a bull economy its potentially going to release some half decent results.... even Restaurant group is up apparently

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gus 1065 29th Nov '17 79 of 83
1

It's also Revolution Bars (LON:RBG) 's AGM tomorrow afternoon, so perhaps there is the expectation (leak?) of forthcoming news that may be relevant to the rise.

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paraic84 1st Dec '17 80 of 83

Looks like Deltic is starting to snap up Revolution Bars (LON:RBG) shares. Makes some sense I suppose as they thought the company was undervalued at 200p so why not buy some at less than that?! Revolution Bars (LON:RBG) may still be taken over or merged yet. I am slightly surpised the price has fallen back a bit this morning and I am wondering whether to increase my holding (I was going to wait until I got an impression of how it was doing over Christmas before buying more).

See: http://www.telegraph.co.uk/business/2017/11/30/deltic-reignites-advances-revolution-bars-snaps-15m-shares/

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vik2001 1st Dec '17 81 of 83
1

In reply to post #248228

I topped up last week, to me its a no brainer. I think its only a matter of time before they are snapped up, and with xmas around the corner their profits will be the highest at this time of year.

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nicobos 4th Dec '17 82 of 83

Old news I suppose, but just in case you missed it...

https://www.betaville.co.uk/betaville-intelligence/rare-alert-revolution-bars-group-said-to-part-2/

Deltic Group has been quietly acquiring shares in Revolution Bars Group [LON:RBG] in preparation for a new attempt to merge with the UK-based bar operator, Betaville reported on 28 November.

People who claimed to be familiar with the situation said Deltic built up a stake of 3% in Revolution last week and may reveal its holding before its next annual general meeting.

The unverified sources said Stifel brokers have been working to acquire the Revolution stake for Deltic, the item reported.

Deltic is unable to launch a takeover proposal for Revolution until early next year, unless invited to do so by the company’s board, after an earlier offer was rejected, the report noted.

A number of large shareholders in Revolution, including Legal & General [LON:LGEN] and Artemis, have indicated they might be prepared to entertain a Deltic merger if the terms were right, the item reported.
Revolution has an GBP 82.5m (USD 111.1m) market cap.

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VegPatch 5th Dec '17 83 of 83
3

I went to the AGM and met the Deltic CEO who was there and confirmed that Deltic had bought shares. The Chairman Keith Edelman rubbed a few PIs up the wrong way with his overly officious handling of the meeting. Then the votes came out and 20% of shareholders had voted against him. I don't see him being there for long.
Deltic can bid again for 6months unless invited to do so by the Board. This situation is set to run for a while.

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