Finn Cap on Revolution Bars Group

RBG has delivered a strong trading performance over Xmas/New Year’s Eve (+4% LFL sales growth in the key 4 weeks to Dec 31), supporting H1FY20 LFL sales growth of +1.2%. A steady improvement was seen over the six-month period and represented a sequential upswing on Q1FY20’s +0.7%. This improved performance is consistent with our unchanged FY20 adjusted EBIDTA forecast of £12.3m (following negative forecast momentum during most of FY18/19), and a first important milestone in RBG’s broader revitalisation programme to drive the company to a stronger competitive position. Central to the RBG investment case is driving a sustained recovery in LFL sales. The initial benefits of management actions appear to be driving the basis of such a recovery. So far, so good.

• Both RBG’s brands performed. Today’s RNS represents the seventh consecutive year of a record Xmas out-turn, confirming again that RBG’s two formats (Revolution and Revolución de Cuba) across 76 sites perform during the important-for-profits festive period (c20-25% of annual profitability). H1 total revenue increased +3.4% and the annualization of the five venues opened in H1FY19. More importantly, RdeCuba continues its established pattern of positive (but unquantified) LFL growth throughout H1, whilst RBG’s main brand (Revolution) delivered an improving (but unquantified) LFL sales trend through H1, which should help assuage investor concerns that the Revolution brand had perhaps lost relevance with its target customer base.
• H1 to deliver good news on refurbishments, work streams, and debt reduction. We expect good news at the time of the H1FY20 results on 26 February on: (1) the initial benefits emerging from the major refurbishment (15 venues p.a. with a three-year pay back achieved through LFL sales uplifts) of its estate; (2) the positive impact of the programme of 30+ work streams (including new pricing initiatives, new food offer, competitive socialising, and enhanced digital customer engagement) aimed at driving a much improved trading performance; and (3) how the consequent improved profitability and cashflow are allowing RBG to continue to invest in the refurbishment programme (rather than estate expansion and dividends) and pay down debt.
• Active venue management. RBG has transacted (with completion expected in March) with the landlord of nine of RBG’s venues, to surrender five leases of loss-making sites and re-gear a further four leases with a small net rent reduction. The new effect of these transactions is to improve RBG’s on-going full year operational cash flows by c£1.2m p.a. We will reflect this in our forecasts at the H1 results.