Revolution in high spirits after a double shot of buyer interest
IT IS almost a year ago that this column tipped
Revolution Bars Group as a buy at 175½p.
It had an ambitious expansion plan, it was investing in existing sites and it had positive feedback from staff and customers alike. But all this was doing little to woo the market.
The good news flowed as freely as the drinks until May this year, when the group warned that rising costs – including the new living wage, rising business rates and the apprenticeship levy – were taking their toll. The shares plunged to 111p.
However, last week’s preliminary annual results reassured investors that the group is back on track. Revenue for the year to July 1 was £130.5 million, up from £119.5 million, and like-for-like sales were up 1.5 per cent. Adjusted operating profit reached £9.5 million, up from £7.6 million and the firm has improved its margin.
Half a dozen new sites and several major refurbishment projects are all on track to deliver the 32 per cent returns on capital that last year’s new openings achieved.
The shares have bounced since their nadir, reaching 207p. No doubt the attentions of two potential buyers have helped to pique investor interest.
Pub group Stonegate made an approach in July, offering 203p a share – a 62 per cent premium to the market price at the time. That offer now looks rather lacking. Shareholders are expected to vote on it by the middle of this month. In the meantime, Revolution has turned down a merger proposal by nightclub group Deltic, which has until Tuesday to make a bid.
Revolution says rising costs are still a headwind but improved financial reporting and controls mean the firm is better placed to deal with any challenges.
Bears might point out that rising inflation is squeezing consumers, potentially making them less likely to splash the cash on cocktails and nights out at salsa bars.
But discretionary spending typically holds up well, regardless of inflation or the economy’s state. Consumers prefer to tighten up on the grocery shopping and household bills before they give up a trip to the pub.
Revolution is pressing ahead with expansion. Analysts say successful new sites, strong cash generation, low debt and a new chief financial officer – who is improving policies – mean the business is superior to the one
that floated in 2015.
Midas verdict: Investors may not have long to decide whether to buy the shares. Chairman Keith Edelman said last week: ‘It is likely the ownership of the company will change in the next few weeks.’ But he added that nothing was certain.
Certainly, with two potential suitors in play and considering the recent share price surge, there are some questions about whether the deal can go through without at least further negotiations.
The shares are a buy – even if the offer is voted down, the firm’s expansion plans bring the prospect of further gains.