Cake Box
Ticker: CBOX Exchange: AIM

Cake Box specialises in making delicious, high quality, bespoke celebration fresh cream cakes in-store while customers wait. Their cakes are entirely egg free and are sold in over 100 franchise stores across the UK.  

Brisk sales growth sustained

Brisk retail sales growth, an accelerated online performance and new store openings were key features of Cake Box’s trading statement, issued today. Moreover, the company continues to see strong momentum across the business and is confident of further progress in the second half.

Like-for-like sales revenue growth remains encouraging for Cake Box. Despite the loss of six weeks of trading, group sales in the half ending 30th September 2020 were £8.6m, which was only slightly down from £8.8m in the same period a year earlier. More importantly, in the 20 weeks since re-opening like-for-like sales increased at an impressive 12.1% pace. The specialist fresh cream cakes retailer’s FY2021 H1 results are due for release 23rd November.

Cake Box’s online business continues to perform well with the rate of growth now at 81%, an acceleration from 74% early last month. As we highlighted in a 1st September 2020 update Cake Box – Underlying trading strength pays dividends the company is benefiting significantly from the implementation of its delivery service through the use of Uber Eats, Just Eat and Deliveroo. In our view, online strength is a further vindication of the underlying strength of the Cake Box brand.

Furthermore, the core franchised retail estate is expanding. Cake Box added 6 new franchise stores in the six month period to end-September 2020 and 3 more are expected to open imminently. Additionally, the company is holding deposits on a further 47 outlets. Growth prospects for the franchised retail estate remain strong in our view. In particular, the company is currently under-represented in a number of key regions.

The company expresses confidence in its outlook. New store applications are at a record high, which augurs well for the national roll-out mentioned above. In addition, not only was sales momentum strong going into the second half, but also end-period cash on hand was at a robust level of £5.0m.

In our opinion, Cake Box’s valuation remains attractive for a robust growth story based on a strong financial model. In particular, we believe it right to champion the positive free cash flow and high return on capital characteristics of a predominantly franchised business. Consequently, a share price above 200p, reflecting a premium rating to peer group, seems deserved in our view.

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