If you imagine the share price graph of Cake Box as a five-tier wedding cake, investors are now tucking into a very lowly layer. Stock in the niche business — not just a cake seller, but an exclusively egg-free cake seller — has been on a frothy ride in recent years. After exceeding £4 in November 2021, when the company said its half-year revenues had almost doubled, today the shares are priced at 157p.
The firm, which has 212 branches around the UK and specialises in creamy cakes that cost about £30 but serve ten people, floated in 2018 at just over £1 a share. It is still suffering from a reputational hit since “inconsistencies” in its inventory reports were highlighted in 2022. A 160p-a-share takeover approach last month — from a private equity-owned Australian cheesecake business — was rejected by Cake Box’s founder and chief executive, Sukh Chamdal, as “materially undervaluing” the firm. But the stock is now down 14 per cent on the same time a year ago, raising questions over whether that bid dismissal was wise.
The latest numbers suggest Cake Box is in tastier shape: sales across franchised sites rose almost 7 per cent in the first 17 weeks of its financial year. The fresh momentum was needed — at its full-year results in April, the firm said its underlying earnings had fallen from £8 million a year earlier to £6.7 million.
Last month, the baking business also flagged signs of easing inflation in some of its key ingredients, including cheaper fresh cream, which will help margins. The balance sheet is strong — the final dividend will be paid out on Tuesday, after which Cake Box will have £6 million in cash.
The business is spreading out: Cake Box’s trial of supermarket kiosks in Asda seems to be proving successful, with an initial five kiosks having grown to 18. For physical stores overall, the company reckons there is a market for 400 in the UK.
Wayne Brown at broker Liberum pointed out that a mature Domino’s Pizza store receives more than 60,000 orders a year, but only just over two orders per address that it serves, while a mature Cake Box store receives only 10,500 orders. “So there remains huge scope to drive frequency,” Brown added.
Cake Box is light on capital demands and is cash-generative, but the shares are trading at a price/earnings ratio of only 13. Clive Black at house broker Shore Capital expects good growth “as new stores, greater brand awareness, tight cost control and ongoing strict cash management come through”.
Let them eat cake — and profit off the back of it. Buy Cake Box.
