Patisserie Holdings (AIM: CAKE) has reported good results with revenues up 11 per cent and profits ahead by 16 per cent. Three quarters of group sales come from the Patisserie Valerie chain of cafes with other shops trading as Philpotts and Druckers. With 10 new outlets opened during the half, the store count is now up to 192 and the company is on target to add 20 in total this year.
There’s a good pipeline of sites and crucially the store openings are funded from operating cash flow. After investing in these new stores, free cash flow amounted to £5 million and net cash rose to £16 million at the March balance sheet date. This gives it scope to acquire portfolios of stores as well as roll-out the organic opening programme. In addition there are 11 Patisserie Valeries inside Debenhams stores and the company is experimenting with counters in a dozen Sainsbury’s. So the brand looks like it is quite flexible and can be applied in a range of formats.
This latest period has seen cost pressures from food price inflation and the increase in minimum wage. Food costs have now normalised and gross margins held up well during the period as management focused on buying efficiently and benefiting from scale economies. The company says the latest rise in National Living Wage will add £0.5 million to costs but that it hopes to offset most of it by better rostering and other scale benefits.
Management state that Easter was strong and trading during the six weeks after the half year has been good. Looking at broker Canaccord’s forecasts, cash will end this year at almost £22 million and rise to £44 million in 2019, which leaves plenty of room to enhance returns if the right opportunities are found. For now the shares trade on a p/e of 21 times this year, falling to 18 times in September 2018.