Revolution Bars Group – viva la Revolución, more people power please

You will never catch me glueing my hands to the road surface of the M25, nor will you see me stealing a car then driving it to park outside a hunt protestors’ driveway gates before setting it alight, for that matter nor will you see me sailing a pink boat in Oxford Circus.

However, I willingly will shout from the sideline to bring on the Revolution.

The group’s estate

In this case, being more specific, I want to see masses of support for the drinking dens within the widespread Revolution Bars Group (LON:RBG).

I know that I am far too old to be seen in any of the 67 premium bars that are within the estate of this group – but it has been known.

The group operates under two main brands – ‘Revolution’ and ‘Revolución de Cuba’.

Revolution’s primary customer focus is set upon the 18–25-year-old market, those who are looking for a fun and party atmosphere. During the daytime, the brand’s focus on food has a broader appeal.

The group states that Revolución de Cuba’s focus is on a slightly more mature and discerning customer.

The female customer is at the heart of the group’s proposition, it therefore strives to ensure that its environments are clean, well maintained, safe and properly supervised.

Furthermore, its continual aim is that its product offers, and its service quality are consistent with such a premium operation.

Its history

Some older readers may well remember the AIM-quoted Inventive Leisure Group, established in 1991, which originally set up the Revolution Bars in 1996, that were situated only in main locations within towns and cities across the country.

It was focussed upon offering its premium facilities to its urban customers, most definitely not from edge-of-town or out-of-town locations.

Inventive floated in 2000, when it was up to 22 bars, some 14 of which were branded Revolution.

Six years later Alchemy, the private equity group, took Inventive private at an 87% premium to the IPO price.

The first Revolución de Cuba bar was opened in Sheffield in 2011.

Over the next four years the group improved its estate and by 2015 upon the £110m float of the Revolution Bars Group, its estate was up 58 premium bars, trading under either of its two main brand names.

Today, with 67 bars spread from Aberdeen to Belfast and Brighton, it employs over 3,000 individuals delivering a wide range of premium and fun cocktails and drinks, lunchtime and evening food offerings as well as live entertainment.

Its bars are generally open late morning, throughout the day and until the early hours.

The group’s equity

There are some 230m shares in issue.

The larger shareholders include Jupiter Asset Management (24.4%), River & Mercantile Asset Management (5.27%), Artemis Investment Management (5.25%), IG Markets (5.24%), Jarvis Investment Management (3.66%), Legal & General Investment Management (2.73%), and Hargreaves Lansdown Asset Management (2.66%).

Notable private holders include Mark Ward (10.0%), the Dubai-based Eldose Babu (7.02%), and Adrian John Williams (6.99%) – the latter also has declared stakes in Bioventix and in the Driver Group.

Last week’s Trading Update

On Thursday of last week, the group announced a Trading Update covering its Q1 business from 19 July until 2 October.

In that time span it had experienced strong demand, some 17% higher than the same period in 2019. Costs have been well controlled, helping to generate better than expected profitability.

Understandably last year’s trading was severely dented by the lockdowns, quite devastatingly so, with the group having been expected to have seen revenues collapse significantly.

Obviously, it has remained a bit of a basket-case due to Covid-19. However, following a £21m fund raising earlier this year, the group has severely reduced its debt and strengthened its balance sheet, thereby helping it to return to growth again.

Just yet it is far too early to anticipate any guidance further out, even so it does feel that this group is bouncing back very strongly, currently boasting net cash of £3.7m and a sizeable £36.5m facility headroom.

With last week’s Update the group’s CEO, Rob Pitcher, stated that:

“We spent the lockdown periods working extremely hard to refine and enhance our brand propositions with a key focus on heightening guest experience.

As a result, it is extremely encouraging to see we have capitalised on the pent-up demand we predicted, which has been reflected in excellent trading so far this year.

We are therefore confident in the group’s outlook assuming that there are no further restrictions on our ability to trade.”

Broker’s View

Analysts Nigel Parson and Michael Clifton at finnCap, which is the group’s broker, have estimated that the year to end June 2021 will report around £38.8m (£110.1m) in sales, while creating a massive loss of £24m, compared with a previous £9.8m loss.

Spinning forward into this current year, to end June 2022, the brokers forecast a mega-leap up to £141.1m of takings, generating a small loss of just £0.3m.

Jumping ahead still further they have pencilled in £159.9m of receipts and a £2.8m pre-tax profit, worth 1p per share in earnings.

The brokers have fixed a price objective of 40p on the group’s shares.

While over at Peel Hunt, their analyst Douglas Jack also rates the shares as a ‘buy’ but going for 35p as his objective. He sees the group’s estate growing by some 20% over the next three years.

My View

I believe that we will get another positive Update when the group announces its final results for the year to end June – that is on Tuesday 16 November, just over a month’s time.

By that time the reservations for the Christmas period will be building up at quite a pace, enabling Pitcher and his team to be even more bullish about business, while also updating the group’s investors on its refurbishment programme.

It may well also bring about a more definite market guidance that could justify the group’s brokers in raising their current and next year’s estimates.

The group’s shares, which were riding high at over 204p four years ago, have been down to as low as 7.95p less than a year ago.

Today they are trading at a more realistic 24.25p, on the back of a daily average volume of nearly 900,000 shares dealt.

Even though they are being called a lot higher by its brokers, I feel that the company will soon see its shares up above the 30p level.

I now fix my near-term Target Price at 31p.