Cafe chain Patisserie (CAKE:AIM) has reported its ninth consecutive year of growth with a double-digit rise in pre-tax profit, an impressive improvement in cash conversion and a proposed maiden final dividend of 1.67 per share.

It isn’t enough to encourage investors to stick with the stock, as profit taking sends the shares down 6% to 320p. Patisserie’s share price has enjoyed a strong rally, rising by 60% in the past 12 months.

PATISSERIE HOLDINGS - Comparison Line Chart (Rebased to first)

We’re still bullish on the stock as it is increasing sales substantially ahead of the coffee shop market, which is growing at 10% per annum.

Patisserie’s revenue is up 20% to £91.9 million in the year to 30 September, while revenue at Patisserie Valerie – which counts for 68% of group sales – is 23.6% higher at £62.9 million. Adjusted pre-tax profit is up 29% to £14.6 million.

Patisserie is extremely cash generative and had net cash of £6.1 million at the year end. It has opened 26 new stores in the past 14 months and cash conversion has risen from 76% to 98%. The group is now funded entirely by operating cash flows.

Patisserie has launched several new concepts in the past year, the most successful of which has been afternoon tea, which contributed £1.2 million in sales in its first six months. Its online ‘create-a-cake’ feature has driven a 20% increase in online revenue.

The group’s plan to open 20 new stores in 2016 is on track, with eight sites already open. Several sites will be low capital cost shops within Debenhams (DEB) and some will be new Baker & Spice outlets.

Chief executive Paul May says a key product launch next year will be a gluten-free range of cakes, following feedback from its customers.

May says that as well as opening new stores Patisserie will definitely consider acquiring another brand, saying there is the possibility of 'one or two' acquisitions in 2016.

'We done lots of acquisitions in the past and if something is the right fit we would look at acquiring it. There's nothing imminent and it's not easy to find businesses to acquire but we're constantly looking,' he adds.

Cantor Fitzgerald analyst Mike Dennis says Patisserie's roll-out should continue to grow cashflow.

‘These are a good set of results that reflect a well-executed store roll-out plan and a strong discipline on costs and capital investment,’ he says.

Cantor Fitzgerald has increased its target price from 350p to 385p, implying upside of 20%.

Issue Date: 27 Nov 2015