Cake Box Share Discussion Threads

[s_a_b] 07/8/2018 20:47

Thanks for sharing your detailed analysis goldguru2017. Interesting you mention DOM given the franchise model – I missed out on that one so would be delighted with similar growth here!

The main driver of growth and shareholder returns is clearly going to be the ability to continue opening an average of two new franchise stores per month. If they can do this at 24 per year up to the target of 250 stores mentioned on p16 of the admission document, while maintaining existing store sales, then I think it’s likely there will a major upward movement in the share price over time, particularly given the franchise model and minimal capital requirements for expansion. If they can continue to generate LFL growth from existing stores and / or introduce complementary products then things could get very interesting indeed.

I had been through the same exercise on future sales/profits and got to some similar numbers. The main difference is that I assumed an average number of stores trading in FY18 of 75 (63 at March 2017 and 86 at March 2018, taking a straight average of the two). This would give a slightly higher revenue per store, but appreciate it is only a rough estimate.

Good luck all!
SAB

[nw99] 06/8/2018 08:03

Like the look of this company bought here

[discodave4] 04/8/2018 22:27

Know what you mean, spread bets can be quite harrowing when you see minute by minute the amount you're losing (or gaining), but I try to work it so the bets equivalent capital holding is what I would be prepared to invest directly in the shares. I figure I might as well use leverage and make the same return tax free, plus only do it with shares that have no dividend so I don't miss out on any yield - hope that makes some sense!.

[goldguru2017] 04/8/2018 19:21

Thanks DD. Yes am a holder at 163 and 170p levels. Considering buying more and will do if it holds at these levels for next few weeks. Worried about a general market sell off which seems to feel more painful when its a spreadbet rather than shares, though I realise this is illogical! GG

[discodave4] 04/8/2018 18:35

ggThumbs up and no argument from me, opened a long spread bet at 155 and will keep it open long term.The only thing I would challenge is there are other retailers doing egg free but not as specialised/personal or as immediate. Their franchise locations are very carefully selected too to maximise their client base.I do feel as you do that this should grow into a rating that befits such potential earnings growth.I take it you are now a holder?.Good luck either way.DD

[goldguru2017] 04/8/2018 17:44

Firstly, the business model is simple. They make a product nobody else makes and make money from franchisee royalties and the fact they are the exclusive providers of the ingredients to the franchisees. They analyse 70+ potential franchisees a week and are extremely selective in choosing awardees based on strict criteria.

To achieve the March year end figures of AT profit of £2.77 million they had 86 Franchise stores generating revenue to them of £12.834 million. This is £149k per franchisee (having risen from £119k in 2016 and £138k in 2017). Cost of sales were £7.263 million giving operating revenue of £5.571 million and an operating margin of 43%. This is consistent with 2017 and 2016 which is a good sign. Admin expenses were £2.3 million (£1.67 million:2016,1.3 million:2017) which have been rising in line with profits. This gives an EBITDA for 2018 of £3.7 million and After tax profit of £2.77 million.

They opened 23 stores between 2017 and 2018 so lets assume conservatively they have opened 23 stores for the year ending March 2019 (forecast higher). Ok I am not exact here as we don't know at what point each store was opened but this evens out over the years when doing EPS comparisons. Also as the revenue per store has been increasing I assume that this rises from £149k/store to £159/store which is consistent with previous years increases (its profile is now higher with listing and national advertising campaign).

2019 Revenues for 109 franchisees at £159 per store is revenue of £17.3 million. If you assume the same operating margin then the Cost of Sales are £9.88 million, Admin expenses assumed to be flattening out but still increasing so £2.6 million. This gives an Operating profit of £4.85 million and AT Profit of 3.98 million. This is an EPS of 10 pence a share. The PE ratio has dropped to 17 and the PEG ratio is 0.4, still extremely attractive.

A PE ratio for a company like this with annual earnings growth of 53%,70%,44% over the last 3 years in my view is should be around 30. If you assume it is 25 then the share price next year should hit £2.50, a near 50% increase on current levels.

My estimates for 2020 using the same methodology is 132 stores for revenues of £22.3 million and an AT profit of £5.49 million and EPS 14 pence. At a PE ration of 25 (still way below 1 PEG ratio) this is a share price of £3.50.

I would expect the increase in number of new stores to be higher than my assumptions due to the current momentum of the business and proven track record over 3 years. People love the product and this is translating to the bottom line.

Risks. The risks are increasing ingredient costs and inability to pass on these costs and also if the Corporate Admin costs increase higher than I have forecast. The other one is how they fund the 2 new distribution centres and time and cost overruns on these.

I sold out too soon on Dominos Pizza and way way too soon on Fevertree. However, speculating is learning process and I hope that this has taught me to not be scared by high PE ratios on retail companies with high growth rates and a proven formula!

Good Luck to everyone!

[goldguru2017] 04/8/2018 17:08

I want to begin by saying I own shares in Cakebox and am considering buying more. I am stricken by the usual retailatitis share trader infliction that I feel I missed out on the IPO and subsequent rise and it is always a bitter pill to swallow to pay 170 pence when funds got in at just over 100p and others at levels from 135 to 170p over the last month. However, I agree with recent posts that Shore Capital probably told the owners that theres no way they can offload such a large shareholding at IPO, which investors are always cautious about no matter how many shares the owners have still,without doing so at a very attractive valuation to incomings. They certainly did that as 105p for 40 million outstanding shares on a March 2018 year-end profit of £2.768 million after tax gives a PE ratio of 15. Relative to a 70% increase in EPS from 2017 to 2018 this gives a PEG ratio of 0.21. Currently at 170 this is a PE ratio (March 2018 year-end) of 25 on last years earnings which is obviously more challenging but as someone who learnt a lot from holding Dominos Pizza for many years, and yet selling way too soon on much of my holding because I though a PE ratio of 30 and above was too challenging, I believe the proven business model, growing like for like sales and expansion of new stores means that this will rapidly fall next year and beyond. I will share the financial case for this in a following post.

[s_a_b] 21/7/2018 20:55

Thanks for all the info posted on here. Agree dacian the IPO pricing looked v reasonable, possibly because the proceeds were a partial exit for the founders. In case it helps I would add that I visited a store (for research purposes of course!) and the products are excellent, people are friendly, and the online ordering system works fine. You can also see the current number of franchise stores on the 'store locator' tab on their website, there are 92 listed as trading and a further 8 opening soon. They had 86 at March 2018 at the start of the financial year so they appear to be more or less on track with the stated target of two new franchise stores per month.

[insideryou] 16/7/2018 10:44

Robbie burns is a fan. He seldom chooses shares that underperform.

[discodave4] 15/7/2018 22:44

elpirataThanks for posting up.DD

[elpirata] 15/7/2018 22:01

the IPO shares were placed at £1.08 & it reached £1.27 on the first day of trading 2 weeks ago, currently circa £1.60. Its already been punted in the Mail last weekend - one to be careful with & not get left exposed on a pump & dump. Current PER is about 18

Lombard Odier hold 5.2%, Ennismore 5.2%


Share of the Week: Cake Box
David Byers
July 14 2018, 12:01am,
The Times


Sukh Chamdal, 56, founded Cake Box with his cousin in London in 2008

These are sweet days for the British cake industry. The popularity of cooking shows such as The Great British Bake Off, means that baking supplies are flying off shelves. Mintel, a market research company, says that sales of cakes, cake bars and sweet baked goods rose from £523 million in 2009 to £2.33 billion in 2017 and are forecast to rise another 6 per cent by 2022. Yet we are becoming more picky about what we put in our food. Supermarkets’ “free from” ranges, which include products made without gluten, grain, eggs and dairy ingredients, grew 40 per cent to £806.1 million in the year to July 2017.

So it is little wonder that Cake Box, a company that makes egg-free cakes, is doing so well. It was created in 2008 by the chef Sukh Chamdal, 56, and his cousin, Pardip Dass, 46, who opened a small shop in east London, and has grown rapidly since. This month it listed on London’s Alternative Investment Market (Aim), with a £43.2 million valuation. It has 91 shops, run as franchises and has plans for 250.

The history
Fed-up with not being able to find nice egg-free cakes for his daughter’s birthday party, Mr Chamdal and his cousin, who follow a strict lacto-vegetarian diet (no meat, no eggs), decided to take matters into their own hands. They secured a £30,000 government grant and teamed up with London South Bank University, in east London, to develop the perfect egg-free cake recipe.

They decided that there were two gaps in the market — one for egg-free cakes and another for personalised cakes made quickly.

They set out to make individually tailored cakes within minutes and found that 99 per cent of their customers chose this option.

The company sells more than 22,000 cakes a week, ranging from cupcakes (£12 for a box of 12) to eight-inch personalised Victoria sponge cakes (from £14.99) to tiered wedding cakes (from £249).

The performance
Cake Box’s average weekly sales per shop have gone up from 3,805 in 2012-13 to 6,845 in 2017-18. Earnings before interest, tax, depreciation and amortisation rose more than 160 per cent from £1.4 million to £3.7 million in the year to the end of March. The average annual earnings before tax for a shop was £94,000 with an average growth of 15 per cent.

The company has no rival in the bakery trade other than supermarkets, enabling it to open stores from Portsmouth to Glasgow relatively unchallenged. With no direct national competitor for egg-free, fresh cream, personalised cakes, Cake Box is well positioned to continue to expand its slice of the sizeable UK market in stores and online,” Mr Chamdal says. The company also plans to extend its range, introducing a red velvet cake, biscuits and soft cookies.

Cake Box says that demand from potential franchisees is high, with about 75 applications a month. There were 34 pending franchisees at the beginning of June undergoing training before being allowed to open their branches.

Neil Wilson, the chief market analyst for Markets.com, a trading platform, says the company is “riding a wave, as demand for egg-free products rises” and also capitalising on the Bake-Off effect. Clearly there is big money in baking — Patisserie Valerie is worth more than £470 million — so he thinks Cake Box has scope for further growth.

The Verdict
Cake Box was named one of the 100 fastest-growing companies in this year’s Sunday Times Virgin 100 Fast Track list. The company’s franchise model does have a notable in-built risk, which is that some self-governing bakery operators might scrimp on quality and let the company’s reputation down. This explains why Mr Chamdal is so picky about applications, turning down most he receives. Buy

The numbers

Date of flotation
June 27, 2018
Value when joining alternative investment market
£43.2 million
(owners Sukh Chamdal and Pardip Dass take home £17 million)

Revenue
Year to March 2018: £12.8 million
Year to March 2016: £5.6 million

Group Earnings
Year to March 2018: £3.7 million
Year to March 2016: £1.4 million

Average store earnings
£94,000 (91 stores)

[discodave4] 15/7/2018 09:15

Thanks, no problem.DD

[johnyee 7] 15/7/2018 08:14

Sorry Dave I'm not registered either.

[discodave4] 14/7/2018 12:07

Thanks, just tried registering to read the article and can't for some reason, any chance you can post up the key bits.TaDD

[johnyee 7] 14/7/2018 10:05

Share of the week in the Times today so should rise next week.

[discodave4] 09/7/2018 00:37

robotYou numpty, have told you before to pm me and I am more than happy to exchange details.Sorry chaps, have a stalker with half a brain!.DD

[robot ic1] 08/7/2018 23:52

INFORMATION REQUIRED

I AM BEING TROLLED BY DISCO DAVE4 .

IF ANYONE CAN GIVE ME INFORMATION ON THIS INDIVIDUAL /ADDRESS , or IP address , THIS WILL BE A GREAT HELP AND SPEED UP MY SEARCH FOR HIS DETAILS .

THANKYOU .

[discodave4] 07/7/2018 19:35

carcosaAgree about there not being a moat but they are very selective in their franchise locations and franchisees, in terms of demographics and religious beliefs in order to maximise their customer base.IMO it's early days to make judgements about the managements appetite (no pun intended) for growth. The two co-founders of the franchise business model have a lot of skin in the game, over 50%, so would expect they have sufficient motivation to drive earnings and capital growth.DD

[discodave4] 07/7/2018 10:55

Graham's comments in yesterday's stocko:hTTps://www.stockopedia.com/content/small-cap-value-report-fri-6-july-2018-carluccios-ffx-igp-ipx-hipgnosis-cbox-380164/He mentions net income £3m, Im hoping it's going to be closer to £4m based on previous growth rates (2018 was £2.8m). That's a PE of 16.5 and a PEG of 0.36.DD

[carcosa] 06/7/2018 11:58

Graham said he may comment on it after their first trading update or interims.

[martywidget] 06/7/2018 09:09

Carcosa over on Stockopedia posted this last week.

Cake Box - (CBOX) - Recent listing with questionable management?
Thursday, Jun 28 2018 by Carcosa


I'm surprised that Paul Scott aka Paulypilot or Graham Neary hadn't commented on these, unless I've missed their article.

[martywidget] 06/7/2018 09:01

Thanks for that DiscoDave4.

I see that Robbie Burns, Naked trader, comment on Cake Box also over on the column today on proactiveinvestors:

Summer markets are notoriously difficult.....
08:37 06 Jul 2018
www.proactiveinvestors.co.uk/columns/the-naked-trader/29859/summer-markets-are-notoriously-difficult


Site updated every other Thursday afternoon
It's a crazy summer
July 6th 2018

[discodave4] 05/7/2018 22:57

Guess the share price increase late pm may have been due to Robbie Burns (the naked trader) giving them a decent mention on his website:"The number of shops is increasing rapidly and I wonder whether at some point not too far away the company will be bought up by a bigger group (Pattiserie Valerie or some such?).I kind of expected it to come to the market very highly priced but actually the sellers weren't greedy and I thought it was priced reasonably. So I helped myself to a couple of slices of shares. (Every one a winner!).I was tempted to top-slice (Gettit?) after the Mail on Sunday tipped it but decided to hold on rather than take a few crumbs of profit."Put a small long spread bet on myself on Tuesday.DD

[martywidget] 01/7/2018 10:07

MIDAS SHARE TIPS: Jam today... bakery firm Cake Box is a treat for investors with shares likely to rise like
Published: 22:03, 30 June 2018 | Updated: 22:21, 30 June 2018