10th Oct 2022 20:03
(Alliance News) - It's "time for some recognition" for Hollywood Bowl Group PLC, which shares are priced "far too cheap for the growth and resilience on offer", said Berenberg on Monday.
The Hertfordshire-based ten-pin bowling operator said it expects to report revenue of GBP184.9 million for the financial year that ended September 30, increasing sharply from GBP71.9 million the year prior.
It would also be a 42% jump from GBP129.9 million in the pre-pandemic financial 2019.
Hollywood shares closed up 2.2% to 210.00 pence each in London on Monday.
It noted "resilient customer demand for experiential leisure" that supported the strong annual performance.
The update was welcomed by analysts.
"Having also printed 28.6% for the end of financial 2021, the company has now maintained this level of sales for well over a year. While we would still be hesitant to say that this level of performance is a "new normal" following the Covid-19 pandemic, it is becoming clear that plenty of it is being driven by Hollywood's own initiatives," Berenberg noted.
Hollywood now expects to report earnings before interest, tax, depreciation and amortisation growth in excess of 40% compared to GBP38.2 million in financial 2019, ahead of market expectations.
"Since its IPO in 2016, Hollywood Bowl has consistently under-promised and over-delivered on expectations," Berenberg expressed, as it upgraded its underlying forecasts.
"With estimates which we still believe are conservative, a cost base with limited exposure to inflation, and a longer-term opportunity to double in scale, we think the shares remain far too cheap," it maintained.
Berenberg maintains the firm is "well-positioned" in a highly inflationary environment. With electricity costs fixed until the end of financial 2024, around 70% of its revenue entails no inflationary cost of goods sold.
"Even 10% inflation in the remaining 25% of revenues - food and drink - would be entirely offset with only a 1% increase in the price of bowling," the broker noted.
A 1% increase would amount to just 6 pence or so per game. With a family of four currently able to bowl for under GBP22, it represents the lowest cost option of the major bowling operators, Liberum noted.
The bowling operator has also set its sights on expansion, targeting a total estate of over 110 centres across its three brands. It currently has just over 75.
It houses the UK bowling business Hollywood Bowl, the UK minigolf business Puttstars, and the Canadian bowling business Splitsville.
"We see the pipeline, both in the UK and now Canada, as central to the investment case," maintained Shore Capital.
The investment bank said the stock trades on a price-to-earnings ration of around 12 times, with an Ebitda multiple of 6 times, and it boasts a free cash flow yield of 10%.
"We see such metrics as highly attractive given the strength of the balance sheet, the pipeline, and ongoing trading performance," it concluded, reiterating its Buy rating, at a fair value of around 300p per share.
Berenberg also reiterated its Buy recommendation, with a target price of 350p.
By Elizabeth Winter; [email protected]
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