Leading analysts Douglas Jack and Ivor Jones, of Peel Hunt, have said they expect Revolution Bars Group to show a strong improvement in like-for-like sales when it releases its H2/festive trading update next week.
They said:
December trading should be strong, in our view. Deltic (+8.2%) and Stonegate (+5.5%) have already announced strong December trading, and there should be a read-through to RBG, which has had no takeoverdistractions since October.
Last year’s problems were all Finance Department related. We believe the Executive Board and operations of the company have continued to perform, with the slowdown in LFL sales (from 1.5%) to 0.3% during July-September (Q1) being partly due to slower trade in Manchester after the terrorist attacks. In our view, in a strong late-night market, a recovery to 3-4% LFL sales in Q2 should be achievable.
RBG should be capable of at least £1m of cost savings. Our forecasts already reflect understandable delays in cost savings that relate to the company being in a recommended offer period over many months during the last calendar year.
We expect to hold our full-year forecasts, which anticipate LFL sales rising by 1%, margins falling by 20bps, six sites opening, and net debt increasing by £2m to £5m. In our view, there is a chance that the company will have traded ahead of expectations in H1, and should be on track in relation to expansion, having opened one site in July and three in December.
RBG is currently valued at 5.4x EV/EBITDA (3.6x site level EBITDA), well below the 7.3x multiple on which the company floated. Lower supply and competition has transformed some Leisure sub-sectors, and although the bar market has not benefited from supply reduction as much as clubs and wet-led pubs, it is still a beneficiary, and we believe this should eventually be reflected in RBG’s valuation.
