Leading analyst, Douglas Jack, of Peel Hunt, has said that after a restatement of prior year numbers, Revolution Bars Group should now be seen as having generated “sector-leading growth”.

He said in light of this morning’s full-year update, Deltic Group now has a lot of work to do to convince Revolution shareholders that any counter-bid to Stonegate’s offer for the company would offer significant synergies

He said: “Full-year adj. PBT is ahead, up 25% to £9.3m (we forecast £8.2m; consensus £8.1m), with EBITDA up 16% to £15.1m (we forecast £15.6m; consensus £14.6m). After a restatement of prior year numbers, the operational side of the company has generated sector-leading growth. We have upgraded PBT forecasts by 9% and cautiously downgraded EBITDA by 2%.

“LFL sales rose by 1.5% in 2017, and sales in new sites have been “excellent”, such that new site EBITDA margins are expected to reach 20% vs a 17% estate average. Gross margins rose by 80bps; site EBITDA margins were flat (after higher operational costs); and EBITDA margins rose by 60bps due to flat central costs. With the depreciation charge rate falling slightly, EBIT margins rose by 80bps.

“Core estate (56 sites) LFL EBITDA fell by 2.5% by our estimates, but total site-level EBITDA rose by 9% due to expansion and higher margins from new sites (18.4% by our estimates), and were supported by drink product premiumisation, improved food buying terms, and pre-booked income rising by 12% to £17m (based on a conservative measure).

“2017 PBT exceeded expectations due to lower than expected depreciation and central costs. The depreciation element is partly due to prior year adjustments: previously, certain marketing expenditures were incorrectly capitalised as short life assets. Reversing this has reduced marketing spend and depreciation in all years, as has reversing the over-accrual of supplier rebates.

“We forecast EBITDA rising by £2.1m in 2018E (the same as 2017). This is based on 1.0% LFL sales (vs 2017’s 1.5% and recent trading’s 0.3%) as recent trading was undermined by poor weather, and Christmas bookings are significantly ahead of last year. 0.5% less LFL sales equates to £0.4m less EBITDA, but this is more than offset by expected cost savings of £1m (potentially rising to £2m).

“There are 4% irrevocable acceptances for Stonegate 203p/share offer, which we estimate values RBG at 4.0x 2018E site-level EBITDA, although this rises to 4.7x pre-purchasing benefits if we assume that only 60% of the central costs can be avoided.

Deltic has just one week from these results to make a counter offer. We would be surprised if this is a sufficient timeframe to include much cash in any offer. On this basis, Deltic would have to merge into RBG and retain the synergies for existing RBG shareholders, and shareholders would have to decide if the resultant FCF yield and EV/EBITDA multiple, at the equivalent of 203p/share, represents an attractive investment.

“To date, investors appear to have shunned the recommended offer, and the presumption that offers have to be cash-only is undermined by RBG’s operational performance in these results (with PBT up 25%). We believe that, regardless of its own growth and strengths, Deltic needs to offer combined shareholders at least a 10% equity FCF yield post synergies in order to gate-crash the offer.”