Patisserie Holdings

[ADrunkenMarcus]

I liked Patisserie Holdings' results for 2016, released today. I have held it since 2015 in my SIPP and dividend growth portfolios.

http://investors.patisserieholdings.co. ... 1-2016.pdf

The operating margin has risen from 15.9% in 2013 to 16.5% in 2016. Return on capital employed fell from 34% in 2013, but has been steady at 21.4 or 21.3% in 2014, 2015 and 2016.

The mid teens forward PE is quite attractive for a company that has grown so strongly. It is generating very good free cash flow. It is on a historic dividend yield of 1.1% and mid teens EPS and DPS growth seems quite reasonable for some time to come IMHO, whatever the short-term travails of the UK.

Best wishes


Mark.

[jackdaww]

I liked Patisserie Holdings' results for 2016, released today. I have held it since 2015 in my SIPP and dividend growth portfolios.

Mark.

=======================

yes, an interesting company.

i have been to the patisserie valerie cafe in sutton coldfield , i remember it was good and well patronised - always a good sign .

i see there are very few in wales , and not many in the midlands , so plenty of scope to grow?

[ADrunkenMarcus]

They have identified hundreds more sites already.

I imagine expansion in Scotland, Wales, England, Northern Ireland and perhaps the Republic of Ireland has a considerable way to go.

Best wishes


Mark.

[Asagi]

yep and don't forget the online growth - though whether that will tail off if the number of stores keeps rising is another point!

Asagi (long CAKE)

[ADrunkenMarcus]

I do like online sales.

Best wishes


Mark.

[Asagi]

I do like online sales.

Why? Not disagreeing, just asking for your reasons.

The last time I checked, a customer needs to be within certain postcodes to be served online by Patisserie Holdings. Without the requirement for a store and the fact that demand can be satsified away from the peak hours or lunchtime and dinner, I would imagine that online sales are good for margins. Depending on how delivery is sorted.

And, unlike fashion retail, for example, there will be very few returns.

It is possible that online includes a big lump of corporate lunches, which will likely be low margin due to competition. They must be knocking a lump out of local family cake operations, thanks to the enhancements delivered through an online interface.

The Group continues to target 20 new store openings per annum.

if the previous rate of online sales growth is repeated, that will be like adding another 1.5 stores, at the different margin.

Asagi (long CAKE)

[ADrunkenMarcus]

I do like online sales.

Why? Not disagreeing, just asking for your reasons.

The last time I checked, a customer needs to be within certain postcodes to be served online by Patisserie Holdings. Without the requirement for a store and the fact that demand can be satsified away from the peak hours or lunchtime and dinner, I would imagine that online sales are good for margins. Depending on how delivery is sorted.

In general, yes - I think online sales are better for margins and they can gain efficiencies by using a scalable platform. Once the online business is up and running, customers can be added without necessarily incurring additional expenditures because the investment has already been made. I hold Domino's Pizza Group and the economics of their online orders are very impressive.

Best wishes


Mark.

[AdamB]

Hello
I've not looked at these guys before (from an investment perspective that is!) and the mid-teens multiple mentioned above sounded interesting....however the figures I see are 315p share price and 15.3p EPS for Sept-17 so over 20x. Even for Sept-18 its 17.6p so about 18x. Does the source which I'm using have the forecasts wrong?
Thanks
Adam

[Asagi]

Dear AdamB,

My source (Stockopedia) has:

Sep 2017 EPS(f): 15.7p
Sep 2018 EPS(f): 18.4p

making a 2017 P/E of 20.0 and 2018 P/E of 17.1.

Remember that there is a Luke Johnson (Exec Chairman) halo effect here. Also the fact that afternoon tea has become <i>de rigeur</i>. I'll suggest that the market thinks we are in a real sweet spot (no pun intended).

Hope this helps,

Asagi (long CAKE)

[ADrunkenMarcus]

Thanks Asagi.

AdamB, I should have posted the share price at the time I worked out the multiple: at 315p, it's a fair bit higher than when I calculated the PE.

Best wishes

Mark.

[NormanB]

I have had a small holding in CAKE for some time now and also a much larger holding of Domino. On the face of it they may seem similar operations - however - I think of them as being quite different. Pizza is a main meal type of product which is just perfect for online orders, and Domino have this worked out to the ultimate degree. I cannot see many people ordering cakes online in the same way and delivering multiple cream cakes could be a recipe for a messy disaster of a delivery! I spent some time drinking coffee in the Manchester Oxford Road Patisserie Valery and was impressed by the number of cakes being picked up by customers (who most likely ordered online). Also impressed by the fact only one person ran the whole show. Cakes are delivered to the shop and the guy on duty just makes hot drinks and serves cakes and bread over the counter.
I won't be topping up just now but I also wont be selling.

[JohnMalone]

Interesting company that presents a strong growth and I think that will continue giving it in the future as it continues opening stores. The payback is 23 months, this is a machine to generate cash. Currently according to their report they are allocating more than 60% of the capex to open new stores, at the moment they normalize the capex will generate much more FCF.

The least good thing is that it is not very cheap

[ADrunkenMarcus]

Yes, there's great long term potential for FCF as you point out John. The valuation has come down quite a lot, though, compared to the PE it was on a year or eighteen months ago.

I came across this write-up recently, FWIW:

Moderator Message:
link removed. see sites T&C's:-

The contents of WheelieDealer are being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose; unless permission granted by WheelieDealer. .

Sorry, Raptor.

Best wishes


Mark.

[CommissarJones]

CAKE and other companies that can finance their own expansion from internal cash flow are indeed a joy for investors. Booker (BOK) is similar in that respect, and I have been a very happy shareholder since 2010. Greggs (GRG) seems to be another one and released a positive set of annual results yesterday.

http://www.investegate.co.uk/greggs-plc ... 00129896X/

[Asagi]

Hi board,

I will second the WheelieDealer blog piece on Patisserie Holdings. Heck, even I get a mention! There is a second piece on Patisserie Holdings here:

Moderator Message:
link removed. sites T&C's:-

The contents of WheelieDealer are being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose; unless permission granted by WheelieDealer. .

Sorry, Raptor.

Asagi (long CAKE)

[ADrunkenMarcus]

Let's roll.

http://www.iii.co.uk/research/LSE:CAKE/ ... t=LSE:CAKE

Best wishes


Mark.