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Patisserie Holdings can still sell you a mean cake

By Chris Bailey of Financial Orbit | Sunday 28 October 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


After everything that has happened to Patisserie Holdings (CAKE) in recent weeks, it is of little surprise that today's deadwood press includes an article about a potential bidder for the business: 
 
'A veteran restaurateur has declared an intention to make a takeover bid for Patisserie Valerie... 

David Scott, who used to run Druckers Vienna Patisserie, a Birmingham-based group of cafes sold to Patisserie Valerie in 2007, said he had backing from a family-run private equity firm'

Well quelle surprise.  The more I learn about the scandal around the former AIM high flyer, the more I think it was a combination of a determined fraudster who found an opportunity due to a lack of internal controls.  I had to smile about the language used in Friday's regulatory disclosure from the company that with regard to their ex finance director Chris Marsh, 'the Company has now accepted his resignation...with immediate effect, while reserving its position in respect of any potential claims it may have against him'.  Too right.  I think we can guess where this is going.  

As for the ongoing company, we have had a few early statistics showing that the real issues lay not with the revenue line - no great surprises as by some reports 90% odd of transactions were credit card based - but with the cost of sales.  In short, people are happy to buy cakes at the prices quoted but the cost of delivering it to them: rent, wages, raw materials and related. 

I think the Finance Director not fessing up to this is the key to everything that has occurred in recent years.  My guess is still that he missed one target, covered it up and so it rolled on, getting bigger with each year.  

But there is a business here to save.  Mr Scott talks some sense with his observation that '“Patisserie Valerie can be turned around and pulled back. It’s a simple operation but it needs some real, tough day-to-day, hands-on management" but Luke Johnson knows that and with his 37% odd stake and a few friendly large shareholders, he should see this off.  After all he effectively saved the business with his loans and prompt actions immediately after the fraud was discovered. 

 In short for PatVal fans you will continue to be able to get your sugar rush and for shareholders there is still a viable business albeit one at a share price that is going to be initially much, much closer to the emergency 50p money raising that occurred a couple of weeks ago.  Still a complete disaster at multiple levels but not a game over.  


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