Cube Report (28 May) – Annual Results at my top holding

Cube Report (28 May) – Annual Results at my top holding

Morning everyone,

An interesting day for the portfolio as my top equity holding releases annual results.

I’m talking about Volvere (VLE). The shares are up by 1.8% as I type this (note: there’s a wide bid-ask spread on this one).

After covering this one, I’ll decide if there’s time to cover anything else today.


  • Stock data should display here.
Market cap £36 million
RNS Final results
Writer disclosure Long VLE.

Health warning: this is a particularly illiquid share, so if you do think about trading it, think carefully! The bid-ask spread makes it very unsuitable for short-term trading.

I experienced that excitement this morning, which all investors are familiar with, when your big holding releases its results.

But my excitement was met by a results statement with few surprises. Some interesting snippets, for sure, but nothing earth-shattering.

For anyone who is new here, let me remind you: Volvere is a turnaround company, investing in distressed businesses, improving them, and (usually) selling them on.

However, Volvere has held its principal subsidiary, Warwickshire-based Shire Foods, since 2011. This is unusual! Normally, Volvere moves companies off its books after a few years of ownership.

A cynic might suggest that Shire has been held for a decade because of a lack of new bidders for it.

A more bullish view is that Shire has been held for so long because of the value that the directors think they are building in it. Having attended recent AGMs, I can attest that they are confident in their abilities when it comes to food manufacturing, and have significant ambitions in this industry.

Today’s results statement included a 5-year financial summary of Shire:

As you can see the underlying PBT in 2020 rose to £1.8 million (up 31% year-on-year), on the back of an 18% increase in revenues to £27.2 million – an attractive increase in operating margin. Chief Executive Jonathan Lander describes the result as “outstanding”.

You can see from the table that since 2016, revenues have almost doubled as output has increased, and though operating margins were squeezed in 2017-2018, they are again looking decent (6.7%). This is manufacturing, after all – high single digits aren’t bad.

To overcome the limited margins in manufacturing and become a really high-quality business, what they need is some brand equity. And that’s what they are working towards, with the in-house development of Naughty Vegan:

Particularly pleasing was the continuing development of our own vegan brand “Naughty Vegan”, which has been growing sales in both retail and foodservice.  We have three savoury products in the range manufactured by Shire (and two from Indulgence), which will launch later this year.

You can browse the existing range here. I’m no vegan, but I appreciate that it’s a rapidly growing part of the food industry, and I expect this to remain the case for the foreseeable future. I hope Volvere will be able to capitalise! Naughty Vegan products can now be found at Morrisons (hat-tip to Cockerhoop and Lewis!).

(As an aside, Beyond Meat ($BYND) is currently trading at 16x forecast sales. You don’t need me to tell you that’s overvalued. But it’s an insight into the crazy valuations that vegan-related businesses can achieve!)

So it’s full steam ahead at Shire. Two other observations that are worth mentioning

  • Firstly, the “intra-group management and interest charges” in the above table should (in my opinion) be ignored, because they are at the discretion of Volvere’s management.

To prove this, we can note that Volvere said this about their other subsidiary, Indulgence (I’ve added the bold):

There was no group interest and no management charges levied during the year on Indulgence given the level of losses.

See what I mean about these charges being discretionary? If the subsidiary is making losses, they can be waived!

The capital structure of each subsidiary – and therefore the amount of interest it owes to Volvere HQ – is decided by Volvere itself. Similarly, the “management charges” can be nothing or they can be very high. It’s whatever Volvere decides.

So I would view these intra-group charges as dividends by another name.

It’s true that if a subsidiary such as Shire were sold, it might need fresh capital (in the form of debt or equity) to replace loans from Volvere, and it might need fresh managerial input from the new owners. But I wouldn’t let this detract from the business generating £1.8 million pre-tax. Of course, views may differ on this.

And one final observation on Shire, before I move on:

  • Shire’s freehold land and buildings are a valuable resource. They have been revalued at £3.75 million (up from £2.43 million).

Ok, let’s move on and look at the other operating subsidiary, Indulgence Patisserie. This cakes and dessert manufacturer was acquired in February 2020 – not great timing, really!

Chief Executive comment:

…the strategic rationale for our acquisition remained intact – to increase Indulgence’s retail channel penetration and to grow the Group’s foodservice offering.  With the advent of the pandemic, our efforts in the retail channel redoubled during the year, with some encouraging results.

Revenues for the period were £3.62 million and the loss before tax was approximately £1.02 million. 

 The £1 million pre-tax loss is nothing to write home about, but I think we need to treat this business as a startup and also remember that 2020 was an abnormal year. Foodservice (i.e. food for consumption outside the home) was responsible for 20% of Indulgence revenues in 2020, and Volvere says it believes that this was “much higher historically”, i.e. pre-acquisition and pre-Covid.

I’m happy to wait and see what management can do with Indulgence.


Volvere continues to sit on a mountain of cash (£23.7 million at year-end).

As noted previously, I think this is the best bear argument against Volvere – they have too much cash, and it’s going to drag on their returns.

There’s also an inefficiency which can be criticised: they did a £16.6 million tender offer in May-June 2019 at 1290p, after a successful disposal.

This was followed by a £10 million placing in October 2020, at 1350p.

So they gave money back to shareholders, before raising funds a year later! At least they sold shares at a higher price than the price at which they bought them back!

The reason for this sequence of events was the economic crisis relating to Covid, and the belief that acquisition opportunities would be plentiful. Unfortunately, it hasn’t worked out that way:

The economic effect (coupled with the fallout from Brexit) has not created the number of distressed opportunities that we expected in October 2020, when we raised capital.

We believe that this is because UK government support schemes have, to a large extent, enabled affected businesses to avoid closure and/or filing for insolvency. Evicting tenants for non-payment of rent has been all but banned and wage subsidy schemes and government-sponsored loans have been plentiful. As a result, some of the common triggers that generate deal flow for us are absent. 

These support schemes are however now being wound down, and some businesses will have to face debt burdens that may prove to be unserviceable. This, coupled with any further unanticipated disruption, should increase the Group’s investment opportunities.

My view

After all my excitement leading up to these results, in truth little has changed.

I am happy to continue backing management to find investment opportunities, when they arise. It is reasonable, I think, to believe that there will be an economic fallout which involves businesses with decent underlying value needing to be recapitalised over the next 1-2 years.

We should never forget why the management at Volvere are so rare, and why their performance has been so good over so many years: they truly believe that no deal is better than a bad deal! (sorry!)

Unfortunately, 2020 failed to produce an increase in Volvere’s NAV per share: it reduces from £13.85 to £13.65. But we’ve come a long way: this was only £5.69 in 2015!

Balance sheet net assets are £35.1 million after deducting minority interests. Of this, £23.7 million is the cash I previously mentioned.

With a market cap of just £36 million, the enterprise value is a paltry £12 million. For this, you get a small cakes and dessert manufacturer, an up-and-coming vegan brand that is now in a major supermarket chain, and a food manufacturing business that owns its land and buildings and just earned underlying pre-tax profits of £1.8 million!

I’m nervous to say it, but… I think Volvere might once again be undervalued.


11pm: Fixed the market cap after an error was notified by a reader. Thank you!

I hope you enjoyed this article. Please consider supporting this website through Membership if you found it worthwhile, and you’ll get access to all of our articles. Cheers!




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  • comment-avatar

    Graham – Thanks for the comprehensive write up! Sorry, one small correction. The market cap is actually c. £36m post-placing. So EV is actually £10m odd higher than that. Even so I agree it’s a compelling story. For comparison Cranswick plc trades on an historic EV/PBT of almost 20. At this valuation it does seem an interesting proposition for patient LT investors who are not looking for income and happy to accept a somewhat lumpy return profile

    • comment-avatar

      Phil – thank you so much! But what an embarrassing mistake to make on my top holding! That’s what I get for rushing my article and not double-checking (the share count number hasn’t been updated on any of the software providers). Cheers!

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