Revolution Bars trading below indicative 200p bid Revolution trading below indicative bid

With no further deterioration in trading, Revolution's valuation has been underpinned. So it's no great surprise to see a bidder emerge.

 Revolution trading below indicative bid

Revolution Bars (LON: RBG) has been listed for just over two years and there’s a possibility its stay on the market might be a short one. Following the share price slump in the wake of May’s profit warning it has attracted formal takeover interest from privately-owned Stonegate, an operator of pubs and restaurants. Stonegate is carrying out due diligence, but if all is well then we should expect a cash bid at 200p. With the shares currently trading at 178p there’s a potential 12 per cent uplift on the table if the deal goes ahead.

On the radar

Revolution Bars has been a big disappointment since we recommended the shares last year. A profit warning in May saw earnings forecasts reduced by about a third and  the stock lose half its value. The company blamed higher than expected costs, though trading had also softened. Fearing more bad news, we took the view that it was safer to sell out and move on. Though we did comment that it could well ‘be on the radar of potential acquirers’.  

Conditional bid

Last month saw a reassuring update which said results to June would be in line with revised expectations. Like for like sales had also picked up a little which suggested that things weren’t deteriorating further. That helped the shares recover into the 120-130p range before the conditional offer from Stonegate was announced.

Value

The balance sheet at Revolution was sound and the company generates cash before expansion capex on new openings. So value-oriented investors would have held on or been attracted to the stock at the lower levels. The risk, and the reason for our decision to sell, was of further downgrades against a softening consumer spending backdrop. Managing a growth company in the public domain means having to make your numbers. The market can occasionally cut you some slack, but Revolution’s track record was short and it was hard to give it the benefit of the doubt.

The bottom line is that the company might well be better off in private ownership as part of a larger group. It’s also an example of how difficult profit warnings are for investors to get right: it’s not always right to sell on the news. Those who are confident of the deal going ahead now have a nice arbitrage on offer. 

 

        

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