Despite late-night, city-centre hospitality being at the sharp end of the pandemic, Revolution Bars Group (RBG) looks to have made the best of a bad situation. While the half to December 2020 (RBG’s H121) saw the loss of 55% of trading days and sales down 73%, improved estate quality (exit from eight underperforming sites out of 74) and rental concessions have been accompanied by digital enhancement (150% y-o-y higher Revs App usage) and financial restructuring (current liquidity headroom of c £10m). Strong bookings for 17 May onwards from RBG’s target young adults, arguably at lower risk from COVID-19, and the prospect of a benign environment reinforce management confidence in continued group revitalisation, which was starting to pay off ahead of the pandemic.
Revolution Bars |
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29 April 2021 |
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Despite late-night, city-centre hospitality being at the sharp end of the pandemic, Revolution Bars Group (RBG) looks to have made the best of a bad situation. While the half to December 2020 (RBG’s H121) saw the loss of 55% of trading days and sales down 73%, improved estate quality (exit from eight underperforming sites out of 74) and rental concessions have been accompanied by digital enhancement (150% y-o-y higher Revs App usage) and financial restructuring (current liquidity headroom of c £10m). Strong bookings for 17 May onwards from RBG’s target young adults, arguably at lower risk from COVID-19, and the prospect of a benign environment reinforce management confidence in continued group revitalisation, which was starting to pay off ahead of the pandemic.
On a mission
Despite the hiatus of the past year, RBG has delivered further progress in its turnaround plan since the dark days of FY18, when a ‘perfect storm’ of external factors, including extreme weather, supplier disruption, corporate activity and the World Cup, compounded widespread internal difficulties, notably management changes and reduced innovation and customer engagement. In addition to the continued removal of underperforming sites (8 of 74), achieved by way of a CVA in Q420 and lease surrenders, the past year has seen efficiencies, eg rental savings, and greater digital capability (70%+ of sales made via the Revs App, which now has 563,000 registered users against 230,000 at the start of the pandemic). Scheduled full trading, effectively from FY22, should allow resumption of strategic priorities successfully managed in the run-up to COVID-19, ie investment-led sales growth (improving trend of like-for-like quarterly sales in the year to March 2020) and deleveraging (in H1 FY20 a near-halving of net bank debt to just £8.4m).
Securing finances
With net bank debt almost doubling to £30.8m since February 2020 as a result of COVID-19 disruption, management has addressed concerns about liquidity with a new £3.5m rise in bank facilities to £40.3m and thus headroom to £9.5m. This is in the context of its estimate of c £0.4m cash burn per week if unable to trade.
Valuation: Cautious
Investor caution is understandable, given the sensitivity of RBG’s operations to COVID-19 restrictions and the interruption of its three-year turnaround plan. However, sector tailwinds and progress to date are encouraging.
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Consensus estimates
Source: Refinitiv. Note: *Pre-IFRS16; **CVA in Q420 of principal subsidiary may significantly impact RBG’s ability to make a dividend payment until after 13 November 2023. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: TMT
Checkit’s results confirm that FY21 was a game of two halves: in H1 it coped with COVID-19 disruption and kept costs and cash burn under control; H2 saw the return to more normal trading while working on business transformation to lay the groundwork for future growth. Despite the pandemic, FY21 revenue grew 3% y-o-y and ARR grew 46% y-o-y. So far in FY22, the company has expanded operations in the US and ramped up its sales and marketing efforts. We have revised our forecasts to reflect faster growth in ARR combined with higher sales and marketing spend.