Cake Box has started FY2021 positively with strong same store sales growth, new store openings and an excellent online performance. The company is not only able to repay its furlough monies, but also reward shareholders with a special dividend. Cake Box released a trading statement as such this morning.
Like-for-like franchised outlet sales growth in the 3 months since its stores reopened was a brisk 14.1%. Today’s statement refers to the first five months of FY2021, which included April and May, during which the group’s shops were closed due to lockdown. As mentioned in our 15th June 2020 report “Cake Box - Stores reopened and a positive outlook” 131 of the company’s 133 stores had reopened with a limited menu by 1st June 2020. Moreover, the company opened 5 new stores since the relaunch date.
Cake Box’s online strategy is clearly working, as the channel delivered 74% growth from the same period a year earlier in the 3 months to end August. In addition the company is benefiting from the implementation of its delivery service through the use of Uber Eats, Just Eat and Deliveroo, which arguably gives the business added resilience in the event of any future toughening up of anti-Covid measures.
Their franchise model benefits both free cash flow and returns on capital. Recent trading strength leaves the company in a position not only to repay the £156K which it received under the government’s “furlough” Job Retention Scheme but also to pay a special dividend. In October shareholders will receive a payment of 3.2p per share, which replaces the suspended final FY2020 dividend.
Furthermore, the company is in position to resume guidance on financial forecasts with the knowledge that the total lockdown period in FY2021 was six weeks. We include our updated numbers for both FY2021 and FY2022 in this report. We also provide a relative valuation for Cake Box shares on the revised numbers.
Based on the company’s resumption of guidance, the valuation looks attractive enough to argue for investors to support what is clearly not only a robust growth story, but also one based on a strong financial model. We see a good argument for the shares to move to a premium valuation relative to its peer group and thus a share price above 200p seems perfectly reasonable in our view.