MIDAS SHARE TIPS UPDATE: Dividend is a sweetener after Cake Box drops

Almost everyone likes cake and almost everyone likes a reason to celebrate, so the Cake Box, which offers freshly baked, egg-free celebration cakes, should be a winner.

And for much of its 15-year lifespan, it delivered. Founded in 2008, Cake Box joined AIM in 2018 with 91 franchised stores and a consistent record of sales and profit growth.

The shares hovered at £1.08 and reached £4.28 in 2021, as the estate doubled in size and sales soared.

Last year, however, founder Sukh Chamdal was forced to issue a profit warning because Cake Box was hit by rising costs and falling sales. Shares fell to £1.11 and are still significantly below their peak at just £1.48. The price does not reflect the improvements Chamdal has made in recent months, nor the growth potential for the coming years.

Costs have been tightened, a new chairman and chief financial officer have been appointed and last week’s half-year results showed double-digit profit growth and a 10.5 per cent increase in the interim dividend to 2.9p.

There are now 214 franchise stores and Chamdal expects to increase this number to 400. The company spends money on advertising and consumers respond enthusiastically.

Estate agents are looking for a 9 per cent rise in profits to £5.9m in the year to March 2024 and an 8.4p dividend, putting Cake Box on a yield of more than 5.5 per cent. Longer-term growth is also forecast as the number of stores increases and inflationary pressures continue to decline.

Midas judgment: Cake Box specializes in egg-free cakes with fresh cream, popular with consumers who do not eat eggs for religious or dietary reasons and anyone with a sweet tooth. Midas recommended the shares at £1.38 in 2019. They have been on a rollercoaster since then, but at £1.48 the price seems too cheap. Some analysts believe the company could attract predators if its shares don’t rise quickly.

Traded on: GOAL ticker: CBOX Contact: investors.eggfreecake.co.uk or 020 8443 1113