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Revolution’s FY23 results are largely as expected, with revenue lower than forecast but adj. EBITDA (IAS17) and net debt slightly better. Trading in Peach Pubs has remained strong, with LFL sales up 14.1% in FY23 since acquisition, whilst the Revolution brand has been the most heavily affected by train strikes and cost-of-living pressures on its customers. One year on from the acquisition, Revolution has made its first addition to the Peach portfolio, and recent trading reaffirms our view that the pubs are complementary to the core bars business. The start to FY24 has been challenging but the outlook is promising with strong Christmas bookings, and we have left our forecasts for FY24 and FY25 essentially unchanged. We introduce FY26 forecasts and reiterate our 15p target price.
Revolution Bars Group Plc
We are discontinuing coverage of Revolution Bars Group. Our last published recommendation was Buy with a target price of 20p.
Revolution Bars’ FY23 pre-close trading update is an endorsement of the Peach acquisition, which completed in October 2022. Overall group L4L sales were -8.7% versus pre-COVID FY19, but Peach L4L sales were +14% and have progressively strengthened since acquisition. FY23 EBITDA (Adj. IAS17) of £6.6m is £0.1m ahead of our forecast. Encouragingly, early Christmas bookings are running +25% ahead of last year. We leave our forecasts unchanged and retain our 15p target price, implying 156% upside.
Valuation – The company’s EV is just £0.4m/outlet and there is sufficient headroom on the current debt facilities to fund the business through to recovery. There is the potential for a big profit recovery for this high quality business as the inflation rate slows and consumer confidence rebuilds.
Valuation – The company’s EV is £0.46m/outlet; in 2018, it achieved £0.3m EBITDA/outlet at site level. There is the potential for a big profit recovery as the inflation rate slows and consumer confidence rebuilds.
December is usually, by far, RBG’s biggest month of the year. Once again, it has been ruined by external factors. Until the macro outlook improves, we believe the company is right to preserve cash. The company’s EV has fallen to £0.4m/outlet; in 2018, it achieved £0.3m EBITDA/outlet at site level. Conditions are weaker; but the potential scale of recovery is large.
RBG was debt-free at the beginning of the financial year, and has subsequently acquired Peach Pub Company to create a more balanced and diversified estate. Nevertheless, the current cost headwinds facing the sector are too great to offset in the absence of very strong LFL sales growth. Our revised 20p target price equates to 8x EV/EBITDA (2024E; IAS 17).
There are two questions to ask when a company makes an acquisition: what’s the strategic rationale? And is the price sensible? Revolution’s (RBG) acquisition of Peach Pubs for £16.5m plus costs ticks both boxes. Peach Pubs gives it a third complementary division to grow, it diversifies and reduces risk, and it plays to the strengths of RBG’s management. RBG is funding the deal from existing resources without recourse to new equity. We expect Peach Pubs to exceed Revolution’s WACC by FY25. We reiterate our 36p target price, implying +300% upside.
There are two questions to ask when a company makes an acquisition: what’s the strategy? And what’s the price? Revolution’s acquisition of Peach Pubs for £16.5m, announced yesterday, ticks both boxes. Peach Pubs gives it a third complementary division to grow, it diversifies and reduces risk, and it plays to the strengths of RBG’s management. RBG is funding the deal from existing resources without recourse to new equity. It has also announced FY22 results in line with market expectations. We leave our target price unchanged at 36p.
The accretion from the Peach acquisition is being offset by a pause in expansion in 2023E and an extra £0.6/2.0m of energy costs in 2023/24E. The acquisition should create a more balanced and diversified estate, which on 4x EV/EBITDA (IAS 17) is undervalued, in our view.
Delivering as planned In England, LFL sales grew by 0.3% between 19 July 2021 and 2 July 2022 (vs 2019). Having made two sizeable forecast upgrades this calendar year, we are holding our forecasts today. Our numbers reflect good trading and cost control as well as the company moving into a net cash position. This leaves the EV/EBITDA rating on just 3.9x 2023E (IAS 17), which we see as a very attractive level for a company with a strong balance sheet and growing trading/expansion momentum. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Trading ahead; forecast upgrades We are upgrading our forecasts for 2022E to reflect good trading, cost control, lower net debt, depreciation and corporation tax. This, the second sizeable upgrade upgrade this calendar year, leaves the EV/EBITDA rating on just 4.7x 2022E (IAS 17), which is a very attractive level for a company with minimal debt as well as growing trading and expansion momentum. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Despite the impact of ‘Plan B’ and a COVID-driven disappointing December, RBG has matched 1H20 EBITDA (IAS16, adjusted) of £7.6m and has guided that it expects to be towards the top of end of market expectations. RBG has traded strongly when free of restrictions and current trading remains positive, refurbishments are progressing well, and the new site pipeline is building. Growth is firmly back on the menu. We leave our forecasts unchanged, as we are top of range, and retain our 36p target price, implying 80% upside.
A good first half + February LFL sales up 6% = upgrades In 1H22, EBITDA (IAS 17) was £7.6m, in line with 1H20 despite Omicron undermining trading during the key month of December. This compares to our previous FY forecast of £8.0m (IAS 17), which we are now upgrading by 12% to £9.0m. We believe more forecast upgrades are possible and view the current 5.3x 2023E EV/EBITDA (IAS 17) as very attractive. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
One of the sector’s biggest winners from restrictions ending In 1H, reported LFL sales ranged from being up 14% between 19 July and 13 November (vs CY19), to down 23% over the six weeks to 1 January, under greater restrictions. Thus, the government’s ending of all restrictions points to a good recovery. Despite Omicron, we held our forecasts in January, and we expect to at least hold forecasts after the interims. We view the 5.7x 2023E EV/EBITDA (IAS 17) as very attractive. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com 1-page note
Down at the Peel Hunt Arms: A pint of Frost Hammer Some of our best conversations take place at the pub. This week, Ivor discusses the valuation of the Travel & Leisure sector in the context of the broader UK market, how value may still be found when sector share prices seem to be moving sideways, 4Q21 results from Hilton and Marriott and concludes with a preview of IHG’s FY21 results due next week. Ivor.Jones@peelhunt.com, Douglas.Jack@peelhunt.com To watch the video of Douglas and Ivor down at the Peel Hunt Arms, please open the note and click on the image like the one below #Corporate client of Peel Hunt
RBG SSPG IHG
Trading through Omicron without 2022E downgrades Due to LFL sales (vs calendar 2019) being up 14% between 19 July and 13 November, 2022E forecasts are able to accommodate an Omicron-driven 23% decline in LFL sales over the last six weeks of 1H. Despite this, RBG’s net cash position has grown slightly to £4.7m as at 19 January. Overall, we believe this was a tremendous performance under the circumstances. The 2023E rating of 6.4x EV/EBITDA (IAS 17) is very attractive, in our view. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Trading up to a larger and faster set of wheels Revolution Bars’# results presentation was positive. Although new bumps on the road cannot be ruled out, the pace of underlying demand (against a backdrop of less market supply) and the potential of capital investment should enable the company to accelerate sales growth over the next three years. We believe the shares offer good value on an EV/EBITDA of 5.4x 2023E (IAS 17). Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com 6-page note
Momentum maintained LFL sales are up 14% since 19 July (vs 2019), ahead of the bar sector, and materially ahead of our forecasts. This has helped RBG to increase its net cash position to £4.6m, despite expansion starting to accelerate. If no Covid-19 restrictions return, we would expect to make further forecast upgrades in the New Year. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Grin and tonic LFL sales were up 17% between 19 July and 2 October (vs 2019), ahead of the bar sector, and materially ahead of expectations. As a result, RBG had net cash of £3.7m on 6 October, implying a favourable net cash flow movement of c.£8m in 1Q22. If no Covid-19 restrictions return, we would expect to make further forecast upgrades in the New Year. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
LFL sales are up 17%; moving into net cash LFL sales have improved significantly, rising by 17% vs 2019 between 19 July and 2 October. The resultant £3.7m net cash position implies a 1Q cash flow movement of c.£8m, which is the same as our IAS 17 EBITDA forecast for the full year. We are holding forecasts and will consider upgrades in January provided that there are no further Covid restrictions or lockdowns. We increase our target price from 30p to 35p. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Revolution Bars’ Q1 trading update reveals that it has enjoyed a strong start to the year with +17% L4L sales over the summer. This bodes well as we are now into the peak trading period with students now back at university, workers increasingly back at their desks for at least some of the week and Christmas on the horizon. We are encouraged by this start, but it’s too early into the new financial year to consider an upgrade. The threat of the COVID pandemic continues to recede, but local lockdowns, possible restrictions on large gatherings and industry-wide cost pressures remain an industry concern. We leave our forecasts unchanged, and retain our 40p target price, implying 78% upside.
Revolution Bars’ pre-close trading statement reveals that trading has continued to improve as restrictions have been lifted and it now expects to report an EBITDA (pre-IFRS16) loss of c.£12.5m for FY21, a £2.2m upgrade on our forecasts. Trading has continued to be strong as indoor trading has recommenced, which bodes well for when restrictions are fully lifted on 19 July (Freedom Day) as anticipated. We continue to expect a good summer leading into September when universities re-open and then the key run-up to Christmas.
Trading ahead; forecasts upgraded again LFL sales have improved from 48% of what was achieved in the same period in 2019 (vs a c.85% reduction in available covers) in the 4 weeks to 9 May to 86% (vs a 72% reduction in internal capacity) since 17 May. We are upgrading our 2021E EBITDA forecast by £2.5m and halving our net debt forecast. Due to this and ongoing upgrade potential, we are raising our target price to 30p, which equates to 6.5x EV/EBITDA (2023E; IAS 17). Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Hitting the accelerator We are updating our forecasts to reflect the equity fundraising and RBG’s accelerated expansion of eight additional openings in 2022E and 2023E. The company anticipates a four-year payback on these new sites and a two-year payback on its increased refurbishment programme. Our 28p target price equates to 6.1x EV/EBITDA (IAS 17; 2023E) in line with the historic average. Based on the current share price, we estimate the 2024E EV/EBITDA valuation (IAS 17) to be just 4.0x. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Revolution has successfully raised £21m gross to reduce debt, accelerate the portfolio refurbishment plan and allow the business to take site acquisition opportunities as they arise. It allows the company to strengthen its balance sheet, shake off the economic equivalent of long-COVID and return to growth. We are changing our EPS (dil. adj.) forecasts to -0.2p for FY22E and to 0.9p for FY23E. The positive impact of the fund raise should be immediate and grow progressively until FY24E to capture the full benefits. We change our target price to 40p (was 45p).
Trading “extremely strongly” and reducing net debt The 38% of units that have reopened have traded “extremely strongly” under heavily restrictive conditions. This is very encouraging ahead of the entire estate being open on 17 May. We are upgrading our forecasts; these could receive a further boost if strong trading in the core estate continues. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Following this morning’s positive trading statement from RBG and, encouraged by Prime Minister Boris Johnson confirming that the hospitality industry can re-open according to the government’s roadmap, we are upgrading our FY21E EBITDA (Adj.) forecast by c.£1.5m to -£6.75m. Our upgrade reflects management’s ultra-tight cost control, helped by support from third parties. It’s a little too early to consider upgrading revenue forecasts but the ‘bearish scenario’ does recede in light of the newsflow. We retain our 45p target price but expect the gap narrow.
Despite late-night, city-centre hospitality being at the sharp end of the pandemic, Revolution Bars Group (RBG) looks to have made the best of a bad situation. While the half to December 2020 (RBG’s H121) saw the loss of 55% of trading days and sales down 73%, improved estate quality (exit from eight underperforming sites out of 74) and rental concessions have been accompanied by digital enhancement (150% y-o-y higher Revs App usage) and financial restructuring (current liquidity headroom of c £10m). Strong bookings for 17 May onwards from RBG’s target young adults, arguably at lower risk from COVID-19, and the prospect of a benign environment reinforce management confidence in continued group revitalisation, which was starting to pay off ahead of the pandemic.
Branching out RBG’s interim results are in line. Although the company’s number of pre-bookings and registered app users have both soared, we are cautiously holding our forecasts, which include a steady reduction in net debt in 2022E and 2023E. However, with plans in place to launch two new concepts, it is possible that the strategy could soon shift to becoming more expansive, which could generate a big uplift in equity value. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Revolution Bars is back in business, with the outside spaces of 20 bars reopening yesterday, and the remainder to reopen with restrictions from 17 May and without restrictions from 21 June. Opening bookings are encouraging and we expect a good summer driven by the government’s vaccines programme, leading into September when universities reopen and then the key run-in to Christmas. We reinstate forecasts assuming no further set-backs and a new 45p target price.
The wheels are about to start turning We are upgrading our 2021E forecasts slightly to reflect the Budget more than offsetting a slight delay until the estate re-opens fully. The company has ample liquidity and is well placed to resume the strong progress it made before Covid-19. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Potential to emerge strongly from Covid-19 Over the medium term, the trading backdrop could be even better than it was before Covid-19 when RBG was generating 20% self-financed PBT growth. We have adjusted our forecasts to reflect an extended lockdown and estimate the company has sufficient liquidity for 2021E under a full closure scenario. Our 40p target price equates to 7x 2023 EV/EBITDA (IAS 17). Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
The final results reflect the impact of the UK Government’s enforced closure of bars and restaurants due to COVID-19 in March 2020, which resulted in the group being unable to trade for the final 14 weeks of the financial year. This offset the good progress made in the first half of the year and the first ten weeks of the second-half following the introduction of a number of management initiatives.
Liquidity increased; big bounce-back opportunity The 2020 results are in line. H1’s 20% PBT growth and 45% debt reduction (on an IAS 17 basis) then reversed in H2 due to the lockdown. Before and after NL1, RBG traded ahead of the bar market. We estimate it has sufficient liquidity for eight months under full closure. RBG should emerge from Covid-19 with a higher quality estate and a more dominant market position. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com 2-page note
Light at the end of the tunnel 2020E was very much a year of two halves. On an IAS 17 basis, H1 enjoyed 20% PBT growth driven by 1.3% LFL sales growth and strong cost control. We forecast £0.4m of weekly cash burn under lockdown in H2 to equally offset H1’s £7.6m EBITDA. We estimate RBG has sufficient liquidity for the 2021E financial year. With the vaccine roll-out about to start, RBG should emerge from Covid-19 with a higher quality estate in a market that will have less competition. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
President Energy (PPC): Corp | Revolution Bars Group (RBG): Corp
Revolution Bars Group Plc Molecular Energies PLC
The group has announced a proposed Company Voluntary Arrangement (“CVA”) in order to reduce the size of its Revolution Bar estate and rental cost base and improve profitability over the longer term. There is no impact on the Revolucion de Cuba brand. The initiative is one of several that management have introduced to counter the impact on trading of COVID-19 and will have the dual benefit of trimming the estate of underperforming sites and delivering a cash flow benefit of c.£2m p.a. The group’s balance sheet remains strong.
Revolution Bars Group (RBG): Corp Positive trading update
New management has put in place a strategy which the February interim results revealed was returning the group to growth with very encouraging LFL statistics and attractive returns on refurbished outlets. In March, however, in response to COVID-19 and following UK Government guidelines, all venues had to be closed. Management initiatives have materially reduced the cash burn while the group is unable to trade, and the group’s lender has been very supportive in significantly increasing the borrowing facility. Management is now proposing an equity issue, the rationale for which is to strengthen the leverage ratio to create a more appropriate capital structure moving forward, to allow an immediate return to the estate refurbishment programme and to be able to potentially take advantage of strategic opportunities as they arise as the sector emerges from the COVID-19 crisis.
Revolution Bars Group (RBG): Corp
Despite RBG reporting reasonable trading over Christmas/New Year’s Eve (+2.6% LFL sales growth in the key 4 week trading period in December), confirming again how well RBG's two formats across 79 sites perform during festive periods, October and November followed the weak trends experienced in Q1 (-5.0%) resulting in H1 LFL sales of -4.0%. vs our expectation of -2.5%. Given (1) a challenging consumer backdrop, (2) a competitive environment, and (3) an inflection point in LFL sales from the revitalisation actions at the Revolution format still several months away, we cut our FY19 and FY20 adj EBITDA estimates by 25% to £12m and £13m respectively, in line with management’s new guidance. This sharp cut in forecasts largely reflects RBG’s high level of operational gearing. By the same token, we therefore see strong recovery potential once LFL sales start to stabilise. We also cannot rule out the risk of RBG being a target for corporate activity. For these reasons, we are cutting our TP to 145p, and not further.
RBG has announced that it has terminated acquisition discussions with The Deltic Group. This is a definitive conclusion and should be positively received as it removes the disruption that negatively affected RBG’s operational and financial performance in FY18. Post the recent FY18 results, investors appear to have been encouraged by what new CEO Rob Pitcher has planned for RBG given management’s accompanying commentary, namely the “positively received strategy outlined in its preliminary results announcement”. In our view, RBG remains the most undervalued company (FY19 EV/EBITDA of 5x) in the licensed retail sector, with or without potential corporate developments (Stonegate’s 12-month lockout expires on 17 October). This relatively low valuation is anomalous given the significant growth opportunity still on offer. RBG’s venue roll-out strategy, albeit now slightly slowed down to prioritise returning the existing estate to growth, should still see the estate size grow c.15% over the next 18 months given the strong pipeline of new sites, which typically generate a 30% ROIC. To reflect the FY18 results, we have updated our forecasts as per our note dated 2 October, thereby cutting our FY19 adj. EBITDA estimate by 5% to £16.1m.
FY18’s adj EBITDA of £15m is in line with recently downgraded market expectations. We expect consensus FY19 adj. EBITDA forecasts to be downgraded mid-single digit %, principally to reflect the combined effect of weak Q1 FY19 current trading (-5% LFLs) and our underlying assumption of only 5 (vs 6 previously) new site openings. We will revise our numbers post the analyst results presentation and our 1-to-1 meeting with management today. No further update given on RBG’s possible acquisition of Deltic (see our note of 10 September for our full thoughts of such a combination), which we think is where the real interest for investors lies at present.
In the absence of a cash element to the offer from Deltic, we think that investors will choose the (undervalued) certainty of 203p in cash from Stonegate under current market conditions.
Revolution Bars (RBG): FY 2017 results (HOLD) | ScS Group (SCS): FY 2017 results (BUY) | Tristel* (TSTL): EPA results (CORP) | Firestone Diamonds (FDI): Recovery of 134 carat gem-quality diamond (U/R) | Independent Oil & Gas* (IOG): Letter of Intent for SNS platforms (CORP)
RBG SCS TSTL IO7
Revolution Bars (RBG): Possible offer (BUY) - Management announced on 31 July that it had received a conditional proposal from Stonegate to acquire the entire issued and to be issued share capital of Revolution Bars at an offer price of 200p in cash per share. Real Good Food* (RGD): Significant reduction to profit forecasts (CORP) - The recent audit process for the FY17 accounts has identified substantial claims which have not materialised as well as costs which were incorrectly capitalised rather than expensed. This will lead to a significant reduction in FY17 and FY18 profit forecasts. We are withdrawing our forecasts and price target pending further clarification from management. FY17 results are now expected at the end of August.
Revolution Bars Group Plc Real Good Food plc
EBITDA guidance below expectations leads us to reduce our FY17E and FY18E adj. EPS by 22% and 19% respectively and PT from 250p to 180p.
While LFL sales growth of 1.8% for the first 12 weeks of FY17 looked a little light, this was on the back of 2.8% growth in the prior period. H2 comps become easier to lap and Christmas bookings (festive trading comprises 15% of FY sales on average) are up 10% YoY.
Revolution Bars (RBG): Retain forecasts for FY17E and FY18E (BUY) | Gooch & Housego^ (GHH): Trading in line with strong order growth (HOLD) | Central Asia Metals (CAML): Q3 production results (BUY)
RBG GHH CAML
We initiate on Revolution Bars Group with a 232p price target (26% upside) and Buy recommendation. With the share price overhang now removed, the path is now clear for a number of self-help opportunities to drive further upside.
Revolution Bars Group: Happy Hour (BUY) | Gooch & Housego^: Interim results, recovering from a tough Q1 (HOLD) | iomart*: Typically strong prelims (CORP) | Intercede*: Prelims highlight opportunity (CORP) | Iofina*: Restructuring of Convertible Notes (CORP) | Carclo: Final results ahead of expectations (BUY)|Independent Oil & Gas*: Skipper update (CORP)|Idox: Reassuring interims (HOLD)
RBG GHH IOM IGP IOF CAR IDOX IO7
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