Cake Box Holdings LON:CBOX surprised analysts with its latest set of results (12 months to end of March 2024). The company’s adjusted pre-tax profit showed yoy growth of 10.6% and adjusted, diluted EPS was up 3.8% at 11.0p. Analysts are nudging their numbers up now as they are taking notice of its attractive, capital-light growth.
The recent results were on a par with the company’s closest peers in the market. Its net change in cash shows some lag.
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Shares in Cake Box are up marginally on a YTD basis and still look relatively rangebound, despite the results. However, they are up nearly 30% on the 12 month picture. Much of these gains were seen in the second half of last year however. Stock has been languishing since then and was trading at around 167p at time of writing.
The company specialises in the sale of fresh cream cakes, including seasonal and wedding cakes, using an established franchise model. It is focused on the UK.
Cake Box floated in London in 2018 at 108p per share. The company had to defend itself in 2022 after it admitted inconsistencies in its financial reporting.
The franchise model is key to success
Cake Box has continued to expand its empire, with 20 new franchise stores opened in the year. This takes the number of its stores to 225. The company now has a presence in Liverpool and Cambridge. It has an ambitious target of 400 stores in the UK.
The Cake Box stores are operated by 95 franchisees with 47 operating more than one site. More attention is now being paid to the quality of locations, with experienced franchisees being offered a cluster of sites if they have proven their ability to operate the stores profitably. Successful clusters include the likes of Glasgow and South Wales.
Total franchise growth is reported at 9.1% yoy and a building pipeline has been reported. Management seems comfortable with 20-24 stores added per year.
Online sales are a major pillar
Online sales seem like a natural fit for Cake Box. Management reported in the last set of results that they were seeing online sales growth of around 16%. This could form a major part of the growth strategy going forward and help the company to target some areas of the UK where it does not have many – or any – stores. The Cake Box click and collect offer does seem to be gaining traction with customers.
Cake Box still looks like a tempting bid target
Last year Cake Box was the target of a bid from Australia’s The Cheesecake Shop. At the time it was felt that the bid of 160p per share would not get traction with the board of Cake Box. We note the current share price is still marginally over the offer price from The Cheesecake Shop.
Personally I remain very cautious on the bricks and mortar retail sector, both in the UK and elsewhere, just because online has been so very disruptive. That said, we saw some great performance from our pick of Warpaint London LON:W7L for our venture portfolio, and that has done well for us. Picking stocks in the retail sector is tough.
I like the fact that Cake Box management has embraced online sales and think this could contribute considerably to the company’s performance over the next year or so. Cake Box is heavily exposed to the UK economy, but given that it has done well in the last 12 months, there is no reason not to anticipate the same, or better, for the next year. We are not buying Cake Box at the moment, but we will be keeping an eye on it.
