Cake Box marketing push sees sales accelerate

Robust growth, improving margins and positive cashflow are the foundations for all successful businesses.

Enter  (), the UK’s "go to provider" of luxury fresh cream cakes, which despite the tougher macro climate said today that it had continued to see a normalisation of consumer buying behaviour after last year’s shock cost of living crisis. The performance not only underlines the resilience of the company’s capital light model, but also highlights the importance to families of celebrating birthdays and other special occasions with affordable treats, even during more austere periods.

In fact, like-for-like franchisee sales have actually accelerated over the past 12 months, rebounding from a -1.1% low in the six months ending September 2022  - the result of hot summer weather, consumer belt tightening, elevated input costs and overseas holidays - to +3.4% in H2 2023, +5.4% for the first 11 weeks of FY24, and +6.8% year to date. The recovery has been supported by popular digital advertising campaigns and a new website.

What’s more, fresh cream and energy costs appear to be falling, with part of the benefit being passed onto franchisees and the rest helping to bolster gross margins, which hit 49.4% in FY23. It also supported positive cashflow, as net funds climbed to £7.9m (or 19p a share pre September's £2.2m dividend - at the end of July, up from £6.1m in March 2023.

CEO Sukh Chamdal commented: “The Group is on track to deliver YoY revenue growth in line with market expectations. Looking further ahead, with a strong balance sheet, underpinned by a highly cash generative business, the recent investment in professionalising the Group's functions and its baking and distribution facilities along with the strengthened sales and marketing functions, the Group is well positioned to deliver shareholder value in the short- to mid-term.”

Prior to this morning’s favourable outlook, broker Liberum had a buy rating and 200p a share valuation, based on FY24 revenues, adjusted EBIT and  EPS estimates of £37.6m, £5.9m, and 10.9p, respectively, up from £34.8m, £5.6m, and 10.6p last year.

These forecasts seem eminently achievable and might even provide scope for upgrades as the year progresses - especially given 7 new franchise stores have already been added since 1st April, taking the total to 212. At 150p, the shares trade on a modest 13.8x PER, and offer a tasty 5.6% dividend yield.

Lastly, non-exec chairman Neil (Nilesh) Sachdev MBE,MBA, has decided to step down from the board in November to concentrate on his other external commitments. A recruitment process to appoint a successor will begin shortly.