FOOD FOR THOUGHT - A look at Various Eateries - 13/11/20

“Crisis what crisis” so said the Sun in the winter of discontent. Then skipping a decade, we had Norman Lamont in the 1990’s attempting to prop up the pound on the back of Black Wednesday, which briefly saw interest rates hit 17%!

I remember the latter very well, as the Memsaab and I were holidaying in Rhodes at the time, in the days when the papers arrived a day late.

As that news broke, it had me working out what our new mortgage payments would most likely jump to, being on a variable rate and all that.

As it was, I concluded that if we could tough it out and afford to pay that new rate whatever that was, then it could only surely get better moving forward, and it subsequently did.

It’s a bit of long- winded prelude to the stock I have tentatively bought last week at 67p, but nevertheless, the theme has its similarities in that for Various Eateries things from here should, according to the management’s dream, only get better!

Although as I have said on more than one occasion that I wouldn’t touch the sector at the current time, I see this as a pure speculative play with a difference and have elected for a small, more of a fun punt.

My reckoning in the first instance, is that any company in the food/hospitality sector that elects to come to the market in the middle of a pandemic is either completely bonkers or blind to the current situation, or on the other hand, extremely confident in its ability to execute on delivery over the next few years.

Having taken a close look over the last few weeks, I do side with the latter, not least as the company did extremely well to see through the IPO back in September, where it came to the market at 73p a share.

Mind you, given the dreadful backdrop, the market cap of £60m on its debut does seem at the high end, where I guess a lot of those that bought in are taking a leap on the people behind the business.

Without doubt the management team here though is a real plus being first rate and where, if anyone can take advantage of a new normal emerging across the sector (whatever that may be) then it looks like these chaps fit the bill.

The team consists of Hugh Osmond - Pizza Express, Andy Bassadone and Yishay Malkov- Ivy Collection and Oli Williams-McDonald’s who collectively have a vast range of experience across the sector.

Various Eateries raised £25m of new money on coming to market and the aim is to grow its two brands in the shape of Coppa Club and Tavolino, both of which look better placed to meet the inevitable changing habits of the dining experience than many others.

With an increasing number of High St operators disappearing or reducing their footprint management at VARE believe there will be a significant opportunity for the company, once we emerge on the other side of the pandemic and the plan is to roll out further venues alongside making opportune acquisitions.

The belief is and who should doubt this team, that a number of emerging factors will present it with a major opportunity to scale up, particularly if some of the numbers being banded around are anything to go by.

For example, there are now forecasts of between 15%-20% of independent restaurants looking likely to disappear completely in the coming months on to next year, which would equate to between 4k-5k across the UK exiting, thus easing pressures on a highly competitive sector.

Additionally, those likely to stumble on will be in a precarious position where with stretched balance sheets in an environment of rising unemployment many more could soon join the casualty list.

Reading such projections in many ways only goes to reaffirm my previous assertion of staying well away from the sector. But, VARE’s brands and locations do appear extremely well suited to a different food space and it is perhaps worth checking out the website for a look at what is on offer https://www.variouseateries.co.uk/.

Using the opener with my reference to Jim Callaghan, if you are clearly out of touch with contemporary society, people will consequently vote with their feet.

And that is where this expects to win, with brands that people want and that importantly meet their needs and expectations.

So, Coppa Club is already extremely popular and its igloo style cocoon’s for dining have proven to be a big winner prior to the recent lock down and that is likely to continue to be the case moving forward.   

Tavolino is best described as an Italian style offering that pitches at the premium end, but yet retains a casual feel and like the larger Coppa Club brand looks perfectly placed to meet changing needs and requirements with the use of outside space, dedicated areas for remote working along with a premium broadband service.

The concept, being one where people be it work or pleasure can meet in comfortable surroundings, without being crammed in and where both the food and service is at the higher end.

As part of the strategy in coming to the market the management believe there will be excellent sites that become available and where they can achieve a good price in a location that meets their criteria.

Looking at some of the venues of Coppa Club such as Henley-On-Thames, Brighton and Tower Bridge then the current highly cautious expectations for the next 12-18 months may well be overdome as the destinations are in areas that should prove more resilient.

One new opening that has so far been held back due to the virus issues is in Cobham which ties in with the kind of places that the board see as being ripe for driving organic growth.

Both brands however are lined up for significant expansion and Coppa Club’s all-day offering should play out well if specifically targeted market towns are delivered as expected for new outlets.

The concept is, according to the team, well set up to operate alongside the increasing trend of working from home and with provision of space and support for a changing environment, then as the economy opens up again then VARE could be well placed to prosper.

One thing that seems apparent is that the vastly experienced management has identified and recognized that many of the old and tired eateries are played out, so much of the strategy has been to pitch the business where needs have yet to be filled, thus providing something more relevant to changing times.

Although now is as dire as it can get for the industry, it seems that once we are able to really move on, albeit with some changes remaining then such eateries are likely to be in high demand, particularly if we emerge next year into a brighter spring and people are eager to eat out and make the most of the opportunity.

From what I can glean so far from my own research, Coppa Club is already extremely popular and although it is particularly so with the 20/30 somethings, so too it is proving with other age groups, so something on offer for everyone.

Taking a punt on this one at the current time though is exactly that and very much a gamble on the abundance of experience amassed by what is undoubtedly a seriously strong and proven team, who collectively should be able to replicate previous success, if anyone can.

In terms of expansion, alongside attractive venues at decent prices there should also be the opportunity to hire the right staff as an increasingly available labour force becomes available and this should assist in plans going forward.

This sees the board targeting a further three new openings over the next year where the average Capex will be circa £1.2m with a further four to follow a year later.

Tavelino is expected to see at least one new premise within the next twelve months with a further three the following year, although obviously in both cases, much will be dictated by the pace of emerging from the pandemic.

Broker WH Ireland has already penciled in some forecast numbers, which they say are on the cautious side, given where we are at and the as-yet unknowns.

That seems wise and in any case I wouldn’t set too much store by these, but it does at least give some kind of inkling of prospects given they have spoken with management and the fact that VARE as mentioned at the outset managed to get the IPO with a fair degree of support.

The numbers are for 2021 revenue of £27m with EBITDA of £1.1m and a loss of £4.1m. That is understandably hardly inspiring for a company with a market cap today at some £59m.

It does look better beyond though, with 2022 expected to see revenue at £57.5m, EBITDA at £9.2m and a pre-tax profit of £1.9m.

However out on the horizon, which is probably more akin to pure guesswork, at this stage we have £73.5m in for revenue with £12.8m EBITDA and £4.1m in pre-tax profit.

My own strategy with this one, which is a small starter position is to keep tabs on events and see where we head in the coming months.

I’d be happy to use a stop loss and take a small hit, just as I would be to let it run and perhaps add around current or slightly lower levels, depending of course, on just how the picture changes or improves.

It is the latter point that could well kick start the shares into action, as on the day of the vaccine news the shares did move up around 7%, much in keeping with peers.