The negative market sentiment and illiquidity holding back Revolution Bars (RBG) are finally starting to dissipate, clearing the path for the premium bar operator to drive growth through a number of self-help opportunities.
At 185p the £91.8 million cap is trading below its 200p float price as a result of general malaise in the drinking and eating out sector, the limited track record of its new strategy and the 10% shareholding by former private equity owner Alchemy.
The private equity overhang was cleared in April, helping the share price advance 5.7% over the past month.
As well as increasing the stock’s liquidity, FinnCap analyst Roger Tejwani says the removal of the share price overhang leaves the path clear for a number of self-help levers to push the share price higher.
The analyst has initiated on the stock with a 232p price target, which implies 25.4% upside. Tejwani reckons Revolution can grow like-for-like sales by capitalising on the trend for premium drinks, increasing food sales, growing pre-booked revenues and leveraging its social media profile.
The group, which owns 53 Revolution bars and nine Revolucion de Cuba bars, has already adopted these measures, having shifted its focus from a student-focused vodka bar a few years ago to a more female-friendly, food-focused venue. It offers a unique combination of lunch, dinner, drinks and late-night entertainment under one roof.
Revolution’s like-for-like sales growth has been on average 2% above the managed pub/restaurant sector. Its gross margins are among the highest in the UK licensed retail sector and it is also very cash generative with low gearing and no pension deficit.
FinnCap forecasts 13% compound growth in earnings per share between 2015 and 2018. Pre-tax profit is expected to increase by 8.4% to £9 million in the year ending June 2016 and by 13.3% to £10.2 million the year after.