LON:RBG | The Revolution Bar Group - What Now? Be Fearful Or Brave? | Dearg Doom

25th May '17 by Dearg Doom

83 comments 30918 reads

Revolution Bars (LON:RBG)

Share Price 110.5 (1.3% down today)

Bid/Offer 110p - 111p

Market Cap £56.6 million

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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Price Target: 1.70
(+47.21% above Price)

Net Profit

EPS

DPS

Net Profit

EPS

DPS

Est. Long Term Growth Rate: n/a

(£)

(p)

(£)

(p)

Consensus Estimate

6.75m

11.4

5.12

7.75m

13.2

5.54

1m Change

3m Change

-1,000k

-5.23

-0.17

-1,000k

-5.71

-0.35

Nick Ray

25th May '17

I think you are right that this is a trader's share at the moment. My guess fwiw is that they will push it down to 100p and then it will take off briefly for a quick profit.

However, just in case anyone treats this as a tip I'll just say that I won't be backing my own guess here!

aflash

26th May '17

Feb 21 2017 FRP Lo = 11p March 13 2017 FRP Hi = 20p

That's double! In a month!

So it is worth monitoring these cases. (I have n't taken into account the spread.)

Of course we make stabs at the Lo and miss the Hi.

Nevertheless I caught part of the move.

It compensated some of the loss on the holding for which I paid 70p.

I had no RBG before last Friday 19.

Letting the loss grow on a small position gives me the best chance of buying more at the Lo or close to it.

We could be talking a year or more. In hindsight we shall know.

Doctor Doom, it is a valid strategy.

Dearg Doom

Share Price 122.75

Bid/Offer 122.5p - 123.00p (up today near close 11.5%)

Nice to see Revolution Bars (LON:RBG) likely to finish by the close today (Friday) a few percent higher. This was the very minimum required for the short-term bulls. Better again the share price rise was being done on heavy volume.

Next week, we may find more confidence returning to the company with a re-appraisal of the company merits as distinct from some over anxious investors' fears.

An RNS released 2:30 p.m. in the afternoon showed an institution increasing its holding marginally to above 3%. This may have triggered the share price increase, as patient investors on the sidelines desperately waited for a positive sign.

Have just started using Twitter. My tweet observed the directional change in sentiment but I did not know the reason behind it.

Regards

Dearg Doom

gus 1065

.... Albeit tempered by a couple of late after hours RNS that Schroders and Old Mutual sold about 5 million shares between them. May account for a fair chunk of the market sell volume over the past couple of days. Wonder if they are down sizing and are now done or looking to exit completely (about another 5m still held) as this might hold down any further recovery.

Gus.

beatingmrindex

Added another tranche this morning and now c6% of my portfolio - from my certainly not expert opinion its oversold and due a re-rating... But not knowing living wage/cost implications is unforgiveable and I would expect more from the finance function there. New sites taking longer to break even I can live with as long as the brand does entice in the punters.

Looking forward to seeing how the next few weeks go.

Goodness me. Look at all those delayed trades which came out of the woodwork at close of play. Mere mortals don't stand a chance as a trader. All those "OK" "sells" are actually hidden buys. But really, why give yourself grief with a complicated situation like this if you are not already in?

Hi Gus,

Thank you for bringing to my attention the two late RNS that arrived post 5 p.m. It does help to make better sense of recent days' events for Revolution Bar Group.

Old Mutual plc who nearly had 7 million shares sold two-thirds (4.7 million shares) of their holdings. They are now down to just 2.3 million shares. This was notifiable on 23rd of May 2017

Likewise, Schroders plc & Schroder Investment Management Limited reduced by 50% their shareholding in the company with the sale of circa 2.5 million shares.

Essentially, we have found at least two institutions who are taking the major financial hit with 7 million shares sold between them. More institutions may intend to lighten their holdings, but if today's rally holds on Monday, this will be a bullish situation for a few days.

Old Mutual Shareholding Disposal and Schroders plc Shareholding Disposal

I think there is, for now, a temporary safety net put in at circa 110p. A possible game plan would be a stop loss at 110p with the potential to trade profitably if the share trends higher or the chance to acquire shares for the longer term if you are confident of the future.

Regards

rhomboid1

Hi Dearg Doom ,
what is your Twitter handle pls, if it's Dearg_Doom you're set to private which means I can't see any of your tweets

Hi Rhomboid,

Thank you for asking. I'm very much a beginner in this area of Twitter usage. You may need to search @MyDeargDoom on Twitter or preferably click on the link below.

http://www.twitter.com/@MyDear...

Thanks ..I've followed you , may your tweets be as interesting as your posts here can be.

AnonymousUser37607

All investment is dealing with uncertainty; on this particular situation the key issue seems to be what is the share price effectively discounting now and can the company perform better than this. If you cannot form a view on this then move onto the next one or buy a tracker. Situations that appear problematic are precisely where you should be prepared to spend some time if you want to have performance that is better than a tracker.

On that basis I think the question is not "is there still an identifiable growth story here with this company and their trading concept?" as that completely misses the point of active investing; key question is what is now priced into the current share price (arguably not much growth by the looks of it so if the company delivers any its a bonus) & do I understand why this is the case. You have to consider fundamental valuation (what you get) and price (what you pay).

You pay a high price for a cheery consensus.. or something like that anyway (Buffett).

janebolacha

27th May '17

"On that basis I think the question is not "is there still an identifiable growth story here with this company and their trading concept?" as that completely misses the point of active investing"

No, it does not "miss the point of active investing". Not at all! By actively and thoroughly analysing Revolution Bars (LON:RBG) and seeing no compelling case to continue holding, I took the decision to sell out at around 220p, thus dodging a 50% drop and cashing in my profits. You would, btw, need about an 80% rise from here to get back to that 220p. That money is now reinvested in other shares that I find more compelling investments than Revolution Bars (LON:RBG) (even now at its much lower price) and which are already showing profits.

Now that is "the point of active investing".

underscored

Opportunity cost. Often forgotten.

jonno

Money has a time value and while I misread the runes insofar as RBG is concerned and sold at a relatively small loss having first bought at 160p, there are more deserving investment opportunities for the sale proceeds.

What dissuaded me from adding to my holding or buying back in, is the failure of management as exemplified by the contrasting sentiments in the outlook statement in the interim results and recent update. Whether this is a consequence of hubris, over confidence or plain ineptness one may never know.

It may well be that the phoenix will rise from the ashes, but I would rather be invested in companies where I have confidence in the management's abilities. The absence of director buying given the traumatic share price fall is perhaps telling?

Jonno

The rather feeble LFL revenues growth was the factor that concerned me most. Phil Oakley had done a detailed analysis of Restaurant (LON:RTN) several months previously and he had highlighted how their LFL revenues growth had slowed year after year, from +4% to +3% to +2% to +1% and it was obvious that they were going to hit a brick wall sometime. Now Revolution Bars (LON:RBG) are not even close to the earliest of these figures, yet seem already to be already facing an uphill struggle to bring new units into profit. Besides that, their target clientele is rather narrow, their fitting-out costs are very high and their sale prices are very high so, in my analysis, they were going to run out of sites where they would be able to make money. That seems to be exactly what is happening.

There may be a bounce from here, who knows? I don't know that but neither does anyone else. However, the problems were there to be seen way before the recent RNS and are still there. I know all the investing shibboleths about there being opportunity in the midst of problems but isn't it better to avoid the problems in the first place when one reasonably can?

It's perhaps not "active" investing at all but rather pro-active investing rather than reactive investing.

Trigger14

I think you are spot on with your analysis of the risks facing Revolution Bars (LON:RBG). I think most would do a lot better by focussing relatively more on the quality of the business than on its 'fundamental valuation' - how much more should you pay for a business that is more certain of steady growth over the long term than one that faces risks of stagnation or going bust? The answer is a LOT more than most people realise or assume.

Revolution Bars (LON:RBG) is a business in a highly competitive, cyclical sector whose competitive advantage is questionable - its brand seems OK but it seems to be introducing a somewhat high cost model to target a price sensitive demographic. I think its chances of long term success are not very high at all but you never know. It's very difficult to value as it's hard to predict how successful it will be. To buy simply because it looks cheap on a PE basis is in my view naive in the extreme.

Lots of negativity going on here re RBG. I am very bullish from the current price, and look forward to the next few months with interest. This may not be worth 300p but I certainly can see it getting back over 150p.

Visited one of the branches today, spoke to some of the staff and was impressed with some of the feedback especially around their masterclasses. Certainly a marmite share at this stage.

25th Jul '17

Mid Price 123.5p (Up 7% today)

Bid/Offer 121p - 125p

Link for Pre-Close Trading Update for y/e Jul 2017.

The share price seemed to have a bottom of late with buyers ready to purchase whenever the share price fell below 110p level. Volume was picking up in anticipation of better trading results. If the share price had been trending down in the previous few days then the reading of the RNS may have been interpreted differently.

It all depends on what you read first in the RNS. Start near the end of the RNS. Focus on historical accounting practice changes in relation to short life assets and supplier rebates and then followed by the resulting exceptional charge this year due to the reduction in profits in previous years. These words would normally cause a shiver. The fact that they are historic and at face value have no apparent knock on effect seems to have investors at least park their fears to one side.

Turnover is increasing or decreasing depending on which starting point you choose and the number of units included.

Total sales for the Period increased by +9.2% to £130.4m (2016: £119.5m*).

More units do help!

Like-for-like sales rose by 1.5%, down from the 1.7% reported after 44 weeks.

Poor marks here but understandable.

Like-for-like sales growth has since strengthened, up by 2.7% over the last six weeks.

Back to Neutral

Group plans to open six new bars in the new financial year, including Belfast that has just opened, split equally between the two brands.

This number of openings are as expected. The pace of openings is important to give a sign of confidence in the roll-outs and also I like to know how the more mature existing units are performing on like for like basis.

Broker Forecasts

To soothe investors concerns, profits looked to be in line with the much-reduced profit expectations.

2nd July 2017 2nd Jul 2018

Price Target: 1.70 (+47.21% above Price)	Net Profit	EPS	DPS	Net Profit	EPS	DPS
Est. Long Term Growth Rate: n/a	(£)	(p)	(p)	(£)	(p)	(p)
Consensus Estimate	6.75m	11.4	5.12	7.75m	13.2	5.54
1m Change	-	-	-	-	-	-
3m Change	-1,000k	-5.23	-0.17	-1,000k	-5.71	-0.35

Could we be at a re-entry point I wondered? I had twittered much as so last week when the share began to stick above 110p mark. Investors are now paying a premium of 12% above that support point. This increase share price could still prove to be favourable for new investors.

Against that viewpoint, there are large sellers in chunks of a quarter of a million shares at a time off -loading to multiple small investors in trades today. Market makers are certainly having a field day also with that their 3p-4p bid/offer spread.

I hold no longer have a position in the company. I would normally be a buyer at this point going with the trend. Unfortunately, the presence of large sellers is dissuading me for the time being.

@MyDeargDoom

31st Jul '17

Price 182.5p

Bid/Offer 181p - 185p (Indicative from late trades only)

link for Statement re-possible offer for Revolution Bar Group

Surprised late RNS announcement gave immediate joy to many long suffering shareholders. They now have a chance to get their money back so much nearer to their original purchase price. Unfortunately, most traders have been in RBG and most of them are long gone. This share was evermore looking like a long haul for years to come.

The only hint was the persistent resistance at 110p share price level where buyers always appeared. Even as the share price rose post the recent RNS trading update , there were institutional sellers willingly off-loading stock in volume to private investors.

The price should climb within 5% of the offer price at 200p in early trading tomorrow. Maybe 190p would be attractive to early leavers. Other shareholders will be anxious to get most of their money back at purchases above 200p. They will probably hang on at this stage for improved terms or counter offer.

Why the late afternoon announcement so near the close of business for the day? The 50,000 share volume at 127p at 3:51 p.m. seems the only large trade close to the RNS release.

Congratulations to all present shareholders. It will certainly create a buzz about which other company is the next target?

Housemartin2

I sold my holding on Friday and thought myself quite smart to make a 10% return in 4 days ! I really thought we would be in for the long haul with this share - well there you go !

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

Revolution Bars (LON:RBG)

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Dearg Doom

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Revolution Bars (LON:RBG)

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