VARE SERVING UP SOME GROWTH POTENTIAL - 25/02/21

Investors eyeing the menu for recovery plays with an added growth ingredient could perhaps do far worse than home in on Various Eateries (VARE) the company behind the Coppa Club and Tavolino restaurant brands.

Whilst at the current time the shares may be off the radar for many investors, there are a number of factors that come together here, making for a potentially exciting and profitable investment opportunity. Having only come to the market back in September of last year at 73p (see my earlier coverage here) VARE released its Full Year 2020 results this morning, which are largely academic given both the past and ongoing Covid induced disruption.

However, on the back of those I was able to speak with the management team this morning, which is undoubtedly one of the most impressive ever to be assembled across the sector.

This includes Andy Bassadone as Chairman, Yishay Malkov CEO, Ollie Williams CFO and Hugh Osmond the latter of which aside being a major investor, also sits as a Non Exec Director. Although there is at present no guidance out on the market for VARE there is clearly pent up demand for eating out, which sees it ideally placed to move forward as the lockdown restrictions ease and which should pave the way for some serious growth opportunities. There is clearly an abundance of passion and belief from this board which from an investment perspective is always welcome, but equally and importantly, there is also a hard realism that is served up with the extensive market experience. The Coppa Club brand is very much worth checking out on-line and it appears to possess all the right ingredients for future success as the CEO expanded for me. “The Coppa Club is all the things you would want from a club setting, but without the paid up membership and it is on your doorstep. You can come in for a morning breakfast, perhaps just a coffee and work with your laptop, or have an evening meal with friends, so there is plenty on offer as an all day venue with something for everyone ”. The key of course is knowing your market, hitting on the right space and importantly, offering a quality product and service, and to that end looking at the brand and wider feedback, Coppa Club scores well. Despite ongoing restrictions for now, it is evident that the team is chomping at the bit and with the wealth of experience on offer here that spans Pizza Express, Côte Brasserie, Bill’s and the Ivy Collection, then who would wish to argue with the roadmap that has been laid out. Coppa Club already appears in prime locations that includes the likes of London Bridge, Henley-on-Thames and most recently Cobham and there are further outlets set to follow in both the coming months and years. Timing is of course key for any business coming to market and whilst some may be less inclined to buy into this story as yet, the reality is, that now may actually be the ideal opportunity. Having raised £25m at its IPO last year, VARE has the firepower to move for additional locations which can be achieved at very good prices, given the devastation across the sector and on the High St, where as much as 25% of restaurants could be wiped out. Bassadone expands on the prospects, “there are a number of places that we are looking at, so we are talking about places such as, Cambridge, Bath, Oxford, Guildford and Windsor along with wealthy suburbs such as Surrey and Berkshire”.

Within the Coppa Club brand, Bassadone says that they could do a smaller type of offering such as in Henley or the much larger venue Hotel concept that provides overnight accommodation too. What is very apparent and which should clearly hold VARE in good stead is that the team appear to be well ahead of the curve, having already installed the igloo concept before others had even thought about it and where such vision had already seen the brand embracing a changing working environment. “We don’t think the whole world will now start working from home, but we do think that people may be doing that one or two days a week for example and that trend certainly plays to Coppa’s strengths”. As the company moves forward there is likely to be a mix on the outlets it develops in terms of buying the freehold as with Cobham or opting for the lease route. CFO Williams says, “the Cobham purchase was probably more of a one off as it was a really attractive proposition for us as it’s a really difficult place to get into and it came up at the right time and it was a really great purchase. Looking ahead, the majority will most likely be leasehold sites but obviously if an attractive freehold site came up, then yes, we would absolutely look at it”. VARE isn’t however all about Coppa Club as it has another emerging brand in Tavelino which currently has a presence on the Riverside in London.

Bassadone is quick to enlighten me further and where the enthusiasm is arguably infectious, “this is my baby really and it is focused on Italian food which is the UK’s number one seller, but yet, is served by a whole host of mediocre chains that really don’t focus on the product and ultimately end up in a discounting war. It’s effectively an open goal crying out for a quality offering, so what we did with Cote, we want to apply to Tavelino which will be an Italian Brasserie where you can actually have home made pasta. If you want to come and spend £40.00 per head you can, or equally, if you only want to spend £15.00, you can do that too, so something on offer for everyone”. Bassadone sees huge potential for Tavelino going forward as numerous restaurants that closed their doors will not be opening again, providing for a major opportunity in ripe locations with a focus on the quality of the food and service. In terms of the financials Williams says that despite the harsh environment created by the pandemic VARE has a very healthy balance sheet to execute on its strategy and in addition to the money raised, it has also received an interim payment of £2.5m from its business interruption insurance. On trading, when restrictions were eased last summer VARE’s venues experienced robust activity, so not surprisingly there is cautious optimism moving forward.

Bassadone points out that back in the summer they saw big like-for-like growth outside of London with massive pent-up demand and for one who has been operating in the industry for some thirty years he clearly sounds confident on the mission. “Spending on eating out has only been going one way since the early 1990’s and it has now become embedded in our culture, everyone wants to eat out and it is such a big part of our social life”. Indeed, given the easing out of lockdown and the promise of a brighter summer VARE’s biggest headache at its venues may prove to be handling the level of activity, rather than worrying about getting people over the threshold. In terms of promoting their brands it is also refreshing to hear of the strategy as Malkov explains, “we aren’t into running big national campaigns, it is much more about the local pr and marketing in those areas and we already have a strong market position with a good following on social media. If you look at what happened in Cobham, people were already talking about us long before we had even opened and there was a lot of excitement around that”. As mentioned in the opening, there is currently no guidance out on the market at present, but that will change as things progress on the wider economy opening up. There are however for now good reasons to be optimistic, not least the strength and depth of the management and a high quality team also backing up the brands. Coppa’s like-for-like sales were very positive until mid-February of last year and was trading better than expected through July to September, despite various restrictions remaining in place. In particular the five Coppa Clubs outside of London saw a 24% in LFL’s over the period, whilst the first Tavolino which only opened in July of last year also saw positive trading. The coming months should see news emerging on further additions and their locations as Bassadone says that there are currently three or four under active consideration. And just this week the company has also welcomed a new property director on board, who arrives from Loungers where he oversaw some one hundred openings. The team here believe that they are offering a high quality experience in wonderful settings which may be poised to grow and prosper as we finally get to once more embrace some of our much lost freedom. The shares which briefly dipped at the open are currently up 7% at 87.5p and I remain a firm holder for the longer term story. https://www.variouseateries.co.uk/who-we-are