Cake Box Holdings PLC (CBOX.L)
Founder led and owned micro-cap with a strong brand in a niche market selling for less than 50% of its value and EV/EBIT of 8.9x
Key Facts
Description: Cake Box (CBOX.L) is a British franchise chain of egg-free cake shops operating primarily in England and headquartered in London. It’s the only sizable chain of egg-free cakes in the UK occupying a specialised niche and building a strong brand equity. It was founded in 2008 by Sukh Chamdal who still runs the business today. Approximately 25% of equity is owned by the management and 50% by the management and franchisees combined.
Track record: Over the last 7 years Cake Box compounded revenue at 34% CAGR (27% over the last 5 years) and its EPS at a CAGR of 23% over the last 5 years. It has done so with a low debt position and financed its growth almost exclusively from the operating cash flow. Simultaneously it produced a 5-year average like-for-like sales growth of 10.7% and grew its store count at a 28.6% CAGR from 2012 to 2022 (12 to 185) while closing only 3.
Market cap: Its market cap as of the 12th of May 2023 is £50.6 million (~$ 63 million). It has declined 26.5% over the last 5 years. It is also ~14% up from its 52-week low.
Valuation: CBOX.L trades at a TTM P/E of 10.4x (5-year average of 22.4x) and an EV/EBIT of 8.9x (5-year average of 17x).
Business Overview
Background
Cake Box Holdings is a British retailer of egg-free cream celebration cakes. The company operates on a full franchise model basis and as of FY 2022, it has 185 franchise stores and 35 kiosks in supermarkets and shopping malls. The kiosks are at stores like Asda and malls, are operated by the already existing local franchisees, and are in the form of display counters. All the cakes that are made and sold at Cake Box are 100% egg-free, which makes them vegetarian and therefore many people who can’t eat normal cakes for dietary or religious reasons can get their birthday/celebration cakes without sacrificing the quality or taste at Cake Box.
Many Sikh and Hindu-Indian British people in the UK don’t eat eggs for religious reasons. The 2011 Census of England and Wales estimated that there were 1,412,958 people of Indian ethnicity. This number is guaranteed to be larger now after more than a decade. All of those people have birthdays and other celebrations throughout the year and often don’t shop for cakes anywhere else other than Cake Box. Removing the egg from a cake also automatically makes it halal for Muslim British people. Islam is the second largest religion in the UK and according to the 2011 census, there were 2,516,000 Muslims in the country.
Both of those groups are very sticky target customers for Cake Box, however, the company’s cakes are an affordable quality that is enjoyed by many customers from outside those two groups. Cake Box cakes are also much lighter than normal cakes due to the absence of eggs.
Brief history
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