Revolution Bars Group (RBG) – Potential to come into play

Revolution Bars Group (RBG) – Potential to come into play

Revolution Bars Group plc (latest share price 104p, market cap £52 million) is a an operator of bars solely in the United Kingdom. These bars tend to be upmarket and in affluent areas with well-heeled punters!

The group has two brands, Revolution and Revolucion de Cuba. Having only ever been in Revolution back in Fresher’s Week when I had a 50% discount card (and even then it was still expensive) I can’t comment on it, but I did visit the new Revolucion de Cuba in Newcastle a few months ago and found it pleasant. It is comically the same building as the old Destiny nightclub, where I had to promptly leave because I thought I was going to get stabbed. It’s very different now: there is a Havana-inspired theme with sweeping dark floors, and it is artfully kitted out.

The stock has had a turbulent time since listing. Let’s take a look at the chart.

It listed at 200p in 2015. Just when it looked like it might do something in 2017, it announced an awful profit warning. The stock price more than halved, but someone clearly saw value as Stonegate proposed a takeover at 203p (this was rejected, despite being at a 62.4% premium to the share price prior to the announcement).

The board believed that they could achieve better value and since then, the CEO has left (he recommended the cash offer). A CFO also left, and I recall my friend Paul saying that he heard it straight from the horse’s mouth that the CFO wanted a job with less travel. I found this to be a dodgy excuse as he’d not been long in the job and really should have known that it would involve some travel.

What is left now?

At a market cap of £52m Revolution is firmly in small-cap territory. The FY 2018 results were, I thought, uninspiring. It made an operating loss of £3 million, after £3.3 million of expenses due to fees in the takeover bid. So it was just about profitable if we adjust for exceptional items (on the assumption that it won’t be spending money every year on takeover bids), and is generating some cash.

On the positive side, I do not see Revolution as a brand that may go bust any time soon, unless it suffers extreme deterioration in trading. Consumer discretionary spend is something I would be aware of, because when wallets get tight people still drink, but they aren’t likely to spend nine quid on a gin and tonic.  It has increased bank debt capacity, and can ramp up capex and turn it down at will.

Deltic was recently interested, but those discussions were terminated in October. Castlefield has bought a 17.52% stake. The share price continues to bumble along at 100p, with a lot of stock locked away.

I like Revolution, and I think this could be a future winner. It’s small, it’s making progress, and Revolucion de Cuba looks to me like a winning brand. If it can rollout and increase profit, as well as learning from past mistakes under new CEO Rob Pitcher, the share price could, I feel, easily double over time.

Of course, there are risks, but I see Revolution Bars Group as one of the players to emerge from the decimated hospitality sector. More restaurants and chains are going to go bust, that’s almost a certainty, and when the storm passes those who emerge alive may be able to capitalise on a great opportunity. I do not own this company though I’ll be keeping it on the watchlist and looking out for updates.

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