Cake Box (CBOX) describes itself as a ‘specialist retailer of fresh cream cakes’ and has a store a few miles from where I live...not that I have troubled its doors. Whilst the company has traded positively since its 2018 IPO, the stock has had its issues above and beyond the high profile failure at Patisserie Valerie...
As Steve noted in a couple of updates earlier this year (most recently here) the largest shareholder - the CEO - sold a bunch of shares just as the business was starting to recover from the worst of the lockdown (although he still remains the largest shareholder by some distance). His CFO did increase his holding at the same time however. And using Peter Lynch’s mantra that management sell shares for many reasons and what matters is buying stock out of ‘cold hard cash’...I am pretty chilled about this. The latest update - for the six months to the end of September - does read well and I am not too surprised to see the stock pushing up to at/around the 170p transaction price from the sales/purchases noted above, as I write.
All of its stores are now open for business and year-on-year revenues were up 12.1% on a like-for-like basis, aided materially by a 81% rise in online sales as you can now get Cake Box products on Uber Eats, Just Eat and Deliveroo. Well that seems like progress and the company’s store franchise network continues to build and now ranks at 139 stores with a further 47 sites under consideration (with deposits held from potential franchisees). And maybe helped a little by this, Cake Box retains £5 million of net cash on its balance sheet and has fully repaid government monies received for the furloughing of group level employees, an occurrence which gave the company sufficient confidence to announce a special dividend last month.
We will get more details next month with a fuller set of numbers but certainly the guidance from the CEO is pretty clear: ‘we are confident of further progress in the second half’. Today’s c. £64m EV puts the company I would guess on a mid-teens forward multiple which is no disaster. Now clearly everything is a bit up in the air with a potential second wave of restrictions but - if I had to guess - you should not ignore this one. There are lots of moving numbers, but I can see this stock generating c. £6 million in a year or so. Put this on pretty conservative low-teens multiple (x13) and that gives you an EV of £78 million or a share price above 200p a share. I would expect it to generate about £4 million free cash flow at this point which is equivalent to a far from shabby free cash flow yield – hence the return of the dividend as noted above. Now all I have to do to complete my due diligence is...eat one of its cakes. It’s a hard life sometimes!
Filed under: Cake Box, Verditek, Nostra Terra, STM Group, Tern, gold, presidential election
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