|National chain gets nod for Solihull bar
6 Apr 2017
...Solihull Metropolitan Borough Council planners gave the application the green light earlier this week (4 April 2017) subject to a number of conditions, including work beginning within three years...
Planning – Planning Application Documents
PL/2017/00310/PPFL | Change of use from Class A3 restaurant to Class A4 bar along with external alterations. | 64 - 66 Station Road Solihull B91 3RX
|Yes, good post and analysis. Thats my take too. Been in a little while now and about 20% up on my modest outlay. It's just the beginning with RBG but I'm in for the long term as this is in my drawdown SIPP so the progressive div policy will be useful as well as the gradual share rerate! AIMHO, no ramp intended!|
|Yes, it's Paul|
|Great post Paul Scott?|
|Oakley is completely missing the point. RBG is a roll-out. They are being offered absolutely amazing deals on new sites, many of which are former HMV sites which have been closed for years. RBG applies for planning permission change to use as bars, which is difficult & takes a long time. Once granted, they sign a new lease on amazingly competitive rents. So the new sites hit the ground running, on a 38% ROI. So payback period less than 3 years.
Clearly there would be little maintenance capex in the first 3 years, as everything is new. So new sites pay for themselves quickly. Overall maintenance capex is c.£5m, mainly on the older sites.
So the company should make about £17m EBITDA this year, which is enough to fund the maintenance capex, pay a bit of tax (not much), there's little to no debt interest (as it has no net debt), then the remaining cashflow is enough to pay a 2.6% divi, and fund 6 new £1m sites per annum - which raise EBITDA by about £2m per annum.
It's a fantastic business model. Investors just have to sit back & do nothing, and in 5 years time we should be significantly richer from this share.
Over-analysing historic numbers is completely missing the point!
But that, and an aversion many investors have to investing in bars, is what creates the buying opportunity here. I've no idea when the share price will re-rate, but I am certain it will, eventually, once more investors grasp the investing rationale here.
|I think Phil is to an extent missing the point, same as with his last post on RBG. From his writing he comes across as someone who has spent their life looking at financial ratios and annual reports, but has no experience of working in an actual business.
To point out one error in his latest comments on RBG - he claims, based on the comments in the auditor's report, that the fixtures and fittings assets were under-depreciated, implying that profits were therefore overstated.
That claim is a misunderstanding on Phil's part; what the auditors actually said is that they considered the estimates of the assets' recoverable amounts to be 'mildly optimistic'. But the carrying value of the assets in the books is based not on their recoverable amounts but on their depreciated net book value, which is a lower figure.
In fact it's a lot lower, as disclosed in the fixed assets note: "The recoverable
amounts... are predominantly based on value in use... The result of the value-in-use calculations determines that there is a significant amount of headroom over the PPE balance".
The recoverable amount is only relevant in determining whether any impairment of the assets is required, so if the recoverable amount is 'mildly optimistic', this is irrelevant to the carrying value of the assets because the latter is a much lower figure.
In other words, the fixed assets are not under-depreciated. If anything, it could even be argued they are over-depreciated.
Setting aside the accounting technicalities, he ignores the fact that RBG's whole business model is based on being at the top end of the market. Phrases like 'well invested estate' and 'premium positioning' recur time and again in the annual report. The word 'premium' is used 30 times!
That simply isn't consistent with a narrative of directors who are skimping on capex investment to boost short term returns.|
|I'm sure JDW shareholders who have seen their shares rise eightfold in the last 15 years will agree with mr oakley that there are better sectors than pubs for your money.|
|I preferred Phil when he was fronting Human League|
|Phil Oakley latest comments on the sector.
|Just a case of tucking them away and waiting for the next update with a share like this.|
|It's good but like most shares it's slow going at the moment. :0(|
|Oakley's comments on margins, EIBT margin growth, and ROI over the last ~ 5 years sent me back to review the prospectus to better understand the history.
I'm still digging, no strong conclusions yet, but three interesting snippets from the prospectus:
(1) as noted before, 25 sites produced 86% of the group EBITDA. SO very little from the other ~35 sites.
(2) higher GM on drinks vs food, (~76% v 60%) and higher opex on food too. No surprises there but I wonder what the split of lfl sales increases between food and drinks has been in recent periods. The prospectus highlighted trends in LFL food and drink sales in the 2015 prospectus, with food growing much much faster (between 2012-2014 they got double-digit like-for-like revenue growth in food; with drinks +3.3%, -2.2%, +1.9% YoY)). But this breakdown has not featured in subsequent RNSs, IIRC. Overall gross margin is ticking up, but LFL is slowing, perhaps this reflects that little incremental food growth can be achieved - maxed out (and that drinks maxxed out earlier - witness the slow 2012-2014 LFLs noted above).
(3). larger sites (average customer space of 7750 sq ft) are much more profitable than smaller "standard format" sites (avg customer space of 4595 sq ft): avg development cost: 1.7m v 0.9m; avg rev 3.7 v 1.7; avg EBITDA 0.8 v 0.3; avg ROI 53% v 33%. The ROI calc uses EBITDA, as Oakley notes. (SOurce: page 45 of the prospectus)
But most of the subsequent site openings seem to be smaller sites - eg, the Nov 2016 update describes four standard format (albeit de Cubas, more profitable than the revolution formats). the less profitable smaller-sized formats. This is despite the prospectus stating: "Given the higher average profitability of the Group’s larger format bars, the Group currently plans to target larger sites for its expansion (the optimum size for new sites being, the Directors believe, between 8,000 and 16,000 square feet of gross space)." I wonder why they aren't opening larger sites? (Liverpool was the only larger format site opened in this and last year, and it opened "late in the second half" of FY16, though to be fair mgmt said they were targeting one large site per annum, so not that big a miss). Presumably they can't get suitable sites. Is it that hard? Given the relative greater profits, getting two big formats a year, would be very beneficial to earnings. Worth watching if they can open more larger bars in coming periods.
GLAH (I'm a holder)|
|Yes, RBG rent the sites. I guess they could buy the sites but then we probably wouldn't have the debt-free self-funded rollout that we have now. There would be debt.|
|Hi rogash. Yes, saw Paul's comments, but it is interesting to get a counter perspective from Phil, though.
Been doing my own refutation of Phil's analysis, including re-reading the prospectus to better understand the 2012 and 2013 results. A lot of which I had forgotten. One fact that really struck home was that (in 2015 at least) 25 sites produced 86% of the group EBITDA. So the other 35 or so sites at that time were negligible contributors. For the majority of sites, we wouldn't miss if they were gone. An interesting question is whether the new sites are likely to be like the really good ones, or the also-rans.|
|Paul Scott refutes Phil Oakley's analysis.|
|Next say that UK consumer spending trends will continue to grow in restaurant, pubs and entertainment. https://twitter.com/Jiabaochina/status/844860520041594880|
|words of caution from Phil Oakley
|Analysed by Sharescope today:
|Revolution wins best City Bar Dining award
By bar team on March 15, 2017
Revolution Bars Group wins City Bar Dining accolade
|Worst case scenario immediate 20% loss, almost always followed by mini bounce as bargain hunters enter so regain 5%. Dividends continue to be paid as well so a bit of a cushion, so over the year a 10% hit. Get out of the market, when do you re enter? As long as there are no problems with your stock selections then you are then just thinking you can time entry and exit, something i have never been able to do. A friend of mine also runs a portfolio, he has a strict stock selection process which he follows rigidly. He doesn't look at the market at all. He reviews his portfolio at the end of the month to see if anything has changed with any of his selections and to see if any new opportunities have presented themselves based on his criteria. Wish i could do that!! He makes no foolish decisions based on market psychology and noise!|
|Excellent post - forced myself to read plenty on previous corrections / crashes regarding how little in the short term you lose compared to being out of the market.|
|Agreed PP but there's always the thought if you have cash reserves you can top up when or if it happens - I think you stated or made a passing comment about thinking of top slicing on Stockopedia recently.I've lost out years back on short term thinking but it's a case of self preservation just in case As I said above though look back at 2000 or even 8 years ago and really corrections get glossed over very quickly on the way North.|