Small Cap Catch-Up: A Dirty Martini And A Quick Delivery

Nightcap (LON:NGHT) – Buys A Dirty Martini And Funds It At A Premium

It looks as though Sarah Willingham, the former Dragons Den star, has just pulled off another cracking deal as she builds up her Nightcap (LON:NGHT) grouping of late-night bars.

The base of the company came about from the observation and belief that after the Covid pandemic consumers would continue to enjoy premium drinks-led bars.

Her group owns and runs 36 bars under the Disrepute, Cocktail Club, Barrio, Tonight Josephine and Blame Gloria brands.

Late last week she announced that the business had paid £4.65m for ten Dirty Martini bars, five of which are located in prime positions in London while the other five cover Birmingham, Cardiff, Leeds, Bristol and Manchester. The deal also includes Tuttons Brassierie in Covent Garden.

This continues Nightcap’s strategy of making selective acquisitions within the drinks-led premium bar segment of the UK hospitality sector.

Dirty Martini is her fourth major purchase.

What is more, it appears that this deal has been handled extremely well, with the group purchasing the new chain as part of a ‘pre-pack’ arrangement.

Some £10m has been capital invested in the Dirty Martini chain, which in the year to end 2022 generated revenue of £23.7m, creating EBITDA of £3.9m and a profit before tax of £3.1m.

The assets had a value of some £4m as at 31 December 2022.

Just like practically every business within the sector, including Nightcap itself, the Dirty Martini group has been hit by the combination of the cost-of-living crisis, energy costs, supply chain pressures, wage inflation and the train strikes – which saw business fall away substantially across the board.

To fund the acquisition, the group has raised £5m of fresh funds, through the issue of 19,583,333 new shares at 12p each to raise £2.35m together with £2.65m of September 2025 convertible 10% loan notes to existing shareholders and new investors.

This deal, which takes Nightcap’s estate of bars up to some 50 across the country, was funded at a 26.3% premium to the share price before the acquisition was announced.

The growth of the group’s geographic spread has been impressive, while buying a £10m invested company for £4.65m seems cheap to me. And with that growth will come massive buying power advantages, which in turn will kick higher returns.

No doubt until inflation and rail strikes are stemmed trading will remain bumpy, however I have faith in Sarah Willingham and her Management to continue the growth over the next few years.

The £23m group’s shares have been up to 12p since the deal was announced, before closing last night at just 11p.

Times will soon return to normal, and then the enlarged group will start to see the profits really rolling in.

(Profile 14.11.22 @ 9.5p set a Target Price of 12p*)

DX (Group) (LON:DX.) – Valuation Headwind Gone, Shares Are Very Cheap

The news that this delivery services group has reached a full and final settlement with Tuffnells, which related to a claim set up in February this year, is extremely positive for the group’s shares.

It has taken the perceived drag off the equity and now gives the market an unhindered view on just how well the company is trading.

We had a very bullish statement on trading in late February showing continued revenue, profits and cash growth.

Apparently, the group has suffered no impact on its current year expectations or even afterwards following this settlement.

In late February analyst Robin Byde at Zeus Capital stated that the group was ’better placed for growth’ while putting out a discounted cash flow valuation on the shares of 45p.

For the year to early July his estimates were for revenues to rise from £428m to £456m, with adjusted pre-tax profits lifting from £20.2m to £26.1m, generating earnings of 3.28p per share in earnings, enough to pay out a 1.5p dividend.

For the coming year Zeus goes for £478m sales, £30.3m profits, 3.58p earnings and 1.62p of dividend per share.

Further out they see £500m revenues, £34.8m profits, earnings of 4.10p enabling a 1.75p dividend.

Over at finnCap, their analyst Guy Hewett has set a 57p price objective for the shares.

His current year has £465m revenue, £25.4m profits, 3.7p of earnings and a dividend of 1.5p.

For 2024 he goes for £484m sales, £29.9m profits, giving 4.4p of earnings and paying out a 1.7p per share dividend.

The 2025 estimates are £504.3m turnover, £33.6m profits, 3.8p earnings and a dividend held at 1.7p.

The £187m capitalised group’s shares at last night’s close of 31p look extremely attractive.

We know that the business is continuing to expand and based upon the above estimates the shares are significantly undervalued.

(Profile 20.02.20 @ 12.5p set a Target Price of 15p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)