Tue 25th May 2021 - Revolution Bars Group looks to raise £21m to ensure it is ‘well-positioned to grow’ Revolution Bars Group looks to raise £21m to ensure it is ‘well-positioned to grow’: Revolution Bars Group, the operator of 66 bars trading under the Revolution and Revolución de Cuba brands, has announced it is looking to raise £21m to ensure it is “well-positioned to grow the business once its bars fully reopen”. The Rob Pitcher-led business said it intends to raise the funds by way of a Firm Placing and a Placing and Open Offer at 20p per New Ordinary Share. The £21m would be used to reduce the group’s indebtedness, accelerate its existing site refurbishment programme and to take advantage of favourable market conditions for estate expansion. Of the £21m, £20m will be raised through the Firm Placing of 100,000,000 New Ordinary Shares at the Issue Price of 20 pence per New Ordinary Share. A further £1m (approximately) will be raised through the Placing of 5,001,866 New Ordinary Shares at the Issue Price to Qualifying Shareholders, subject to clawback to satisfy valid applications under the Open Offer. The company’s board said it intends to invest, in aggregate, £137,500 in the fundraising. It said that £11m would be used to strengthen the group’s balance sheet and fund the costs of the fundraising; £2.5m to accelerate its estate refurbishment programme, enabling the refurbishment of an additional 15 bars over the next 18 months, targeting a return on investment from such refurbishments of 50%-plus; and £7.5m to take advantage of favourable market conditions to expand its estate, on a selective site-by-site basis, into new towns and regions. It said it would target a return on investment from eight new sites of 25%-plus. The company said: “The board has a strong and supportive relationship with the group’s bank, NatWest, which has agreed to reduce the size of the NatWest facilities by £7m (to be applied as to £3.7m in the reduction of the revolving credit facility and as to £3.3m in the reduction of the CLBILS facilities), notwithstanding the £10m raised pursuant to the fundraising to repay the group’s indebtedness, thereby allowing the group to retain an additional £3m of headroom in the NatWest Facilities as the group moves into a more regular trading environment. The board was excited to be able to recommence trading outside on 12 April 2021 in 20 bars, ready to bounce back to capture the pent-up demand and to take advantage of the improvements made to its brands over the past year. The board is delighted with the performance of the 20 bars within this group since reopening, with the group delivering 48% of the same period in 2019 sales in the four weeks to 9 May 2021 from only 15% of the total capacity of bars that were able to trade, substantially exceeding expectations. The board believes that, with a more appropriate capital structure, the group is well positioned for strong trading in a market environment driven by strong pent-up consumer demand, aided by a significant increase in household savings. The board further believes such consumer demand will provide the opportunity for strong returns from its estate refurbishment plans with the group also benefiting from favourable market conditions for the expansion of its estate. In addition, the directors believe there may also be opportunistic M&A prospects when government support and the rent moratorium ends over the summer months.” Changing the target price to 40p, implying 45% upside from the theoretical post-placing price of 28p, calculated from Monday’s closing price of 34p, FinnCap analyst Michael Clifton said: “Revolution Bar Group’s share price has more than tripled since its April 2020 low point, but it still has a long way to recover, in our view. The fundraise strengthens the balance sheet immediately, allows the company to accelerate the refurbishment programme and recommence the new site roll-out programme with the full benefits rolling into FY24 and FY25 – beyond our explicit forecast period. On our new forecasts, Revolution Bar Group is valued on 9.3 times EV/Ebitda (IFRS16 basis) and 6.9% free cash flow for FY22E based on a theoretical post-placing price of 28p, changing to 7.6 times and 14%, respectively, for FY23E. Our 40p target price is based on an undemanding 10% free cash flow yield and 8.9 times EV/Ebitda for FY23. In setting our target price, we have looked beyond the investment bow-wave in FY22E to FY23 where the first results of the investment should become evident. As the track record builds, we would expect the share price to respond positively.”