| Master Investor Magazine
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In one month’s time, the UK’s largest ten-pin bowling operator will announce its final results for the year to end September – and they will be good, very good, writes Mark Watson-Mitchell.
This company’s business was formed in 2010 following the merger of 18 bowling centres out of the AMF portfolio together with the 24 centres of the Hollywood Bowl portfolio, which at that time were part of the pub operator Mitchells & Butler group.
It floated on the market in 2016, enabling the two largest funding shareholders to sell off 113,283,274 shares at 160p each, some £174.9m worth of stock. In total there were then 150m shares in issue, and despite its subsequent growth, that number has remained unchanged.
The Hollywood Bowl Group (LON:BOWL) today has a portfolio of 60 centres across the UK, operating under the Hollywood Bowl and AMF brands.
Its leasehold venues are generally large, high quality bowling centres, mostly located in large retail parks and out of town multi-use leisure parks, often next to cinema and casual dining sites.
Designed to offer a complete family entertainment experience, the centres offer an average of 24 bowling lanes, state-of-the-art family games arcades, licensed bars and on-site dining.
It appears that the company is doing well from driving product innovations along with its programme of new centre openings, refurbishments and rebranding.
I even understand that, as part of its product diversification, the group is considering setting up mini-golf operations at its sites.
Ten-pin bowling is a very popular pastime for thousands of players, young and old. It is a very big part of the UK leisure market and Hollywood Bowl has some 30% of that market.
Bowling creates around 50% of the revenue, while amusement and gaming machines generate around 23%. Food and beverages, both alcoholic and non-alcoholic, continue to be big earners too.
It is important for the company to continue to increase the frequency of its customers’ visits, while also looking to push the increased achieved price per game, as well as actually increasing the overall spend per game.
The last published average spend per game was up 6.4% at £9.79.
The company is relentless in focusing upon improving its customer experience.
Early last month the group announced a trading update for the last year – it was really quite bullish, declaring ‘another strong performance’.
Overall revenue for the period was up 7.7%, while like-for-like growth was 5.5% – leading the group to anticipate its pre-tax profit to grow in excess of 10%. And that is much better than the market’s analysts were expecting.
Importantly, the group is highly cash generative and has maintained its strong financial position.
Even allowing for its ongoing capital investment programme, which is showing good returns currently, it seems that there will be a fair balance of surplus cash in its balance sheet by the September year end.
Accordingly, the company’s management is now considering how to use those spare funds – so it is possible that shareholders could see a ‘special dividend’ being declared with the final results.
The group’s largest shareholder is Standard Life Investments, with 11.26% of the equity. Other institutions include Threadneedle Asset Management (5.95%), AXA Investment Managers (5.19%), Schroder Investment Management (5.00%), Invesco Asset Management (4.96%), JO Hambro Capital Management (4.90%), Soros Fund Management (4.79%), Man Group Investments (4.60%), Hargreave Hale (3.59%), and NFU Mutual Investment Services (3.14%).
| Master Investor Magazine
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Brokers’ estimates suggest that the finals in a month’s time should show pre-tax profits for the year to end-September up from £23.9m to £26.4m, on the back of revenue up from £121m to £129m.
Those profits would give earnings of around 14.1p per share, against 12.5p previously. The dividend could be around 9p per share, without any ‘special’ if there is such an extra.
For the 2020 financial year, now underway, revenue expectations are some £136m, giving pre-tax profits of £27.8m, worth 14.9p per share in earnings.
Bowling even further forward, brokers are going for the 2021 year to generate £143m of sales, £29.1m of profits and 15.8p of earnings per share.
The company’s shares are building up some steam ahead of the finals, now trading at 236p, which values it at £354m. That puts the price earnings ratio up to 16.7 times, which is actually far lower than the Hospitality Industry average of 23.7 times.
Readers will know by now that I do like good cash generators and Hollywood Bowl is certainly one of those. For investors getting into the market now, it is possible that, when the finals are announced on 13 December, the company may well present an early seasonal gift.
I set a target price of 300p before the end of next year.