NB2: What I can't understand is why DOM UK, which seems to be struggling to deploy capital sensibly right now doesn't just take DPP out at today's modest valuation. The hard work has been done. Inflection is close and all that's needed to finish the job is some additional capital to accelerate the store roll out and press the pedal to the metal on marketing. Now that would be a crying shame despite the upfront premium...
NB: If all that sounded a bit bearish nothing could be further from my mind. Assuming they hit 100 stores by end of 2020 at which point 75% of the estate is close to mature i.e. £0.1m EBITDA pa. That's £7.5m of EBITDA x a multiple of 20 as per DPEU would suggest a EV of £150m. Sure there will be some small dilution to investors from the interim placing. But that's still significant upside from today. And more importantly takes no account of the "hope" value of self-financing continued expansion at that point, which Mr Market will also factor in. So I would argue tuck in at these levels. And leave. I can't imagine (barring WWIII with Russia) there will be a much better opportunity than today's level. Just a shame that Rome was not built in a day...
But until the placing is out of the way (and crucially we have the associated price signal i.e. what price is needed to attract institutional funding), and further evidence of sales / EBITDA success outside Warsaw I expect the shares to tread water.
I think the biggest positive of today's announcement was that their most mature stores are delivering higher sales and EBITDA than their original "mature store" model predicted. If non-Warsaw stores can eventually follow this path then that is massive for future value. But I agree with you coffe911 that the capex lighter franchise led roll-out seems to be taking a back seat pending a more mature estate. This means higher upfront capex. With available cash of £4.5m and likely 2018 burn at a similar level (I'm assuming the new commissary spiked spend last year) then another placing is clearly coming in the next [6] months. Hopefully that should take them to c. 85 stores by end of 2019 and operating cash flow break even as the estate matures
I give up... Let's see what happens over the next few days
Part 2: Not sure why this system sometimes cuts off messages midway through. Anyway as I was saying /
Perhaps someone is cooking a bid. To your earlier point, the company is a bargain if (and I appreciate a big if) you believe the worst is behind them. Net debt at the interims was £29.3m. Let's assume it will peak at £40m before the rot stops and cash flow inflects. Market cap, even after today's stellar rise, is just short of £20m. Say you lob in a bid of 25p, a generous premium to today's close and even more so when compared to the bottom, and more importantly something that will be just enough to save face for LT holders / allow board backing (given the outstanding risks). It goes without saying that this a slam dunk for the bottom feeders who have churned in since the final big drop. So let's assume £32m for the equity. That makes for a de facto Enterprise Value for our buyer of c. £72m or 0.5x 2017 sales /
Although the flip side of that argument is to question why was he was so keen to up size his sale and at a c. 10% discount to market to boot. Is it the case that the institutions are the "smart" money here and an insider is the "dumb" money voluntarily missing out on an amazing future growth trajectory... a potential future bid? That argument always makes me uncomfortable given the sheep that most fund managers are. Now before everyone flames me I'm just playing devil's advocate. I understand the bull case here and take nothing away from management for what they have achieved. I have also been an extremely happy holder in the past, selling my final tranche only recently. And of course insiders can be selling for many "innocent" reasons: desire for liquidity, portfolio diversification. But this is £82.5m of liquidity. Unless there is a gin palace under construction that's a mighty chunk of change for anyone. And given what an amazing investment Fevertree has been historically you would struggle to reinvest those proceeds (assuming that a good proportion are going to be reinvested) and achieve anything like a similar return. Unless, unless it turns out that your super star's best years are actually behind it. And the risk at 75+ historic PE is actually on the downside on any potential revenue growth deceleration. All IMHO
Nb: Not one of mine but SGI is an example of a business that seems to have cheated insolvency multiple times in recent years. Again. Let's see...