Nightcap – aiming to build the UK’s leading bars group
This company’s shares could double within the next eighteen months, as its profits take off.
It has taken advantage of the conditions that the Covid pandemic created and expanded impressively in a very short time.
Now it has built up three main branches to its business and it will use any one of them as its corporate growth strategy gathers pace.
Nightcap (NGHT.L) only floated on AIM in January last year, but it has subsequently shown itself to be an ambitious player in its particular part of the hospitality sector.
The company was set up in September 2020 with the purpose of using the significant changes that were taking place within the UK ‘premium bars’ segment, to acquire and grow a number of concepts through sensible and tight management.
Upon floating, with its shares at just 10p each, it had a £13.5m market capitalisation, raising £4m in the process before £1m of expenses.
The group’s management is very ably led by CEO Sarah Willingham, 47, who was involved in the expansion and growth of various hospitality sector groups, such as the Pizza Express, Clapham House Group and the Bombay Bicycle Club.
She was also a Dragon on the panel of BBC’s ‘Dragon’s Den’, as well as a judge and investor on BBC Two’s ‘The Restaurant’ and ‘Cooks to Market’ series. She was a director and shareholder, with Raymond Blanc, in the London Cocktail Club and played a pivotal role in its growth.
The first Nightcap acquisition was the London Cocktail Club, an award-winning themed cocktail bar operation. It had nine London bars and one in Bristol, aimed at customers in the 26 to 40 years old age range.
The group, upon coming to the market, had a very straightforward corporate strategy – the acquisition of simple, replicable business models with nationwide roll-out potential.
Its timing could not have been better.
During Covid there was a big change in the hospitality sector, and so too in consumer preferences.
Expensive rents, growing capital expenditure costs, excessive discount offerings, increased food prices and the explosion of home delivery – all had impacted businesses within the sector.
Nightcap’s very experienced management team identified that the tastes of its millennial customers had moved significantly away from the offerings of the mid-market sticky-floored chains.
Instead, it was now evident that those customers looked for quality nights out in unique, local style venues.
And that is exactly where Nightcap has big ambitions.
Scalable brand growth
The difficulties in the property market suited Nightcap very well as it geared up its expansion programme, because its declared route was to acquire brands that were totally scalable and then roll out new branches.
In the last fifteen months Nightcap has shown its ability to do just that – so much so that it today has the declared aim to build the UK’s leading bar group.
May last year saw the group make its second major acquisition – that of the Adventure Bar Group, which took in some nine bars, seven of which were established theme bars in London, an outdoor venue bar and a planned bar in Birmingham. It also took on a 50% interest in a central London roof-top bar.
That month saw the group raise £10m through the Placing of some 43.5m new shares at 23p each.
The fresh funds swelled the group’s cash coffers, certainly enough to cover its roll-out and expansion plans for the next couple of years.
The opening of more Cocktail Club bars followed on, ahead of the November £5m purchase of the Barrio Familia group of Tequilla-led bars in London.
The last year or so has witnessed a fairly heady rate of expansion. The pace has been swift and opportunistic.
Three main brands
Today the group has three main brands upon which its expansion is based.
The Cocktail Club, which dropped the London tag suggesting its geographic capability, is an award-winning concept with 13 sites ready to scale up to 40 in London and major cities.
The Adventure Bar Group, has nine sites and is looking to roll out to 40 nationwide.
Barrio Bars, with five Latin-inspired Margarita and Tequila bars, again with significant roll out possibilities.
Landlords want Nightcap as a tenant
As Willingham and her team look at sites across the country, they now have the ability of assessing the potential of each set of premises, as to which could be right for any of its brands.
What is more, as this expansion progresses the group has the strength of its quote and more than sufficient cash in its coffers to fund the taking on of new locations. That must be like manna from heaven for property landlords, knowing that tenants are more than capable of meeting rental payments.
To attract such a tenant as Nightcap, many have actually given rent-free periods allowing it to establish the new venue for any of its brands, with some even offering shared capital expenditure to entice such a stable tenancy.
Recent interims show strength
The mid-March announced interim results to 26 December 2021, reported that the group had enjoyed strong trading with revenues leaping from £2.0m to £15.8m, while the loss before tax was up from £0.3m to £0.5m. At the period-end the group had some £9.4m in cash resources.
At the time Sarah Willingham stated that
"Nightcap has had a fantastic half year. We have taken the first steps in significantly growing our family of bars, both by adding the Barrio Familia Group in November 2021 and by opening three more The Cocktail Clubs in Bristol, Reading and London. We finished the calendar year with 27 top-quality, late-night bars."
Now the profits start to show through
Allenby Capital, the group’s broker, has predicted the current year to end June, will see group revenues explode from £5.97m to £34.38m, with profits of £2.07m against a previous £5.29m loss. Their analyst Matt Butlin considers that earnings will come in at 1.45p per share for the year.
But all that is nothing as compared to his estimates for the next two years.
Butlin goes for £54.39m sales in 2023, then £70.78m in 2024, while profits could rise to £5.27m and £7.53m respectively, taking earnings up to 2.53p then 3.40p per share.
Conclusion – a straight purchase ahead of June Pre-Close Trading Update
On the basis of those estimates, I believe that the £31m capitalised Nightcap group’s shares could easily double from the current 15.25p within the next year or so and still look very good value.