Shares in Cake Box (CBOX:AIM) rallied 8.8% to 216p after the fresh cream cakes retailer announced senior management changes which helped soothe market fears following recent worrying revelation of poor internal controls.
Investors were also relieved as the Enfield-headquartered egg-free cakes franchisor delivered news of strong trading in the second half to date and expressed confidence its performance for the year to March 2022 would be in line with expectations.
WHY CAKE BOX CRUMBLED
Back in January, shares in Cake Box crumbled after the company confessed to reporting and accounting errors highlighted by a retail investor blogger.
These clangers included inaccuracies between the preliminary statement and the annual report and ‘inconsistencies in prior period inventory reporting and comparative period disclosures relating to director interests in franchise stores’.
As previously announced, Cake Box appointed BDO as internal auditor in August 2021 to assist in strengthening its internal controls.
In today’s update, the company stated it continues to work through ‘a plan of improvements based on the areas identified by the external auditors, the initial focus being on inventory management, with some changes already being progressed’.
DASS CARRIES THE CAN
With confidence in the Cake Box story rocked by the revelation of poor internal controls, co-founder and finance director Pardip Dass has stepped down with David Forth appointed as interim finance director.
Forth brings over twenty years’ experience in senior finance roles across the consumer, retail and logistics industries, latterly as interim finance director at AB Sugar.
Cake Box also announced the appointment of Richard Zivkovic as chief operating officer. He joins in June from Island Poke, a ‘grab and go’ franchised food retailer.
The company has also recruited Chay Watkins to the role of marketing director.
Watkins joins Cake Box from a brand strategy consultancy, where he developed brand and category strategies for large fast moving consumer goods brands and multiple retailers and has previously worked for a number of national consumer food, beverage and nutrition brands including Dairy Crest and Samworth Brothers.
WHAT THE BROKERS ARE SAYING
Following the update, Shore Capital left its full year pre-tax profit forecast unchanged at £7 million and insisted the senior management changes represent ‘clear and decisive steps that acknowledge a need for change, recognising the material positive contribution that Mr Dass made to the company.
‘That Cake Box continues to trade very well is an important endorsement of the business’ strong commercial and operational capabilities, which we have never doubted, and as such we see that good trading momentum as most important for shareholders to note.’
Shore Capital is also relieved ‘that BDO is pressing on with its investigative work, which we know shareholders welcome too, and we are comforted that a new CFO provides the human resource to make sure that recommendations are appropriately actioned.
‘As such, this is an important update for Cake Box that we hope and trust will rebuild investor confidence and faith in what has been and has the potential to remain an excellent British retail success story.’
Liberum Capital, with a ‘strong buy’ rating and 470p price target on Cake Box, said: ‘With the internal audit progressing and significant hires made, the market should see all this effort by the board as very encouraging.
‘Surely the focus needs to move back to the fact that compound annual earnings per share growth of 23% for the 2021 to 2024 financial years is deliverable.’
