Ten Entertainment Group – All to Play for Ahead of Finals

In the third week of September the UK’s second largest bowling and family entertainment centres operator declared its half-year results to 26 June.

The Ten Entertainment Group (LON:TEG) showed a very good set of figures that clearly indicated that it was truly back in business after the massively disruptive Covid-19 hassles.

In a few weeks I would expect the group to be issuing its Trading Update for the full year to end December and that could well help to propel its shares by some 25% over the coming months – and still then they would look cheap.

The Business – attracting millions

The £150m capitalised group, which employs about 1,500 people, is a market leading family entertainment business in the UK market with a total of 48 entertainment centres anchored on Tenpin Bowling and trading under the Tenpin brand with 1,115 bowling lanes across its estate.

It also provides a variety of entertainment offerings, such as amusement machines, karaoke, table-tennis, soft play, a range of Houdini’s escape rooms, Sector 7 laser games and American pool tables, plus food and beverages.

These large, high quality family centres are mainly located in retail and leisure parks. close to other family leisure brands, like cinemas and casual dining restaurants.

In the last year it boasts of having entertained some 4.5m visitors, 30% of whom are children.

The average price of a game of bowling is £5.01, with its customers enjoying its various activities, the group earns around £15.10 in revenue per head.

Recent Results – upgrading market expectations

In the 26 weeks to 26 June the group reported total sales of £63.2m, which compares with just £10.6m from the six weeks it was operating in early 2021.

The group’s adjusted pre-tax profits were £15.7m against the previous £10.8m loss.

It was interesting to note that over 90% of the group’s energy needs are fixed to September 2024 at 2020 prices – which really is a big plus.

Going forward the group, ever mindful of the general macroeconomic environment, has put in place a whole parcel of ‘value resets’ to encourage footfall while offering value for money.

The company expects that the 2023 inflation will be managed by additional footfall at its venues, together with limited price increases wherever needed.

The group’s cash generation remained strong in the first half, despite continued investment in fresh revenue-earning initiatives.

A further three centres are under development, while even more sites are being considered.

The group’s CEO, Graham Blackwell, commented that:

“Our teams have once again raised the bar in the first half of this year and have worked even harder to deliver this impressive result.  We have accelerated our growth and redefined the baseline, putting the business in the best possible shape to support our people and our customers through the challenges of the next 12 months.

Our sales growth is, and remains, very strong against 2019 and we have consolidated and built upon the gains we made last year. We now have net cash and have resumed our dividend payments while maintaining our focus on investing in the customer experience to continue our growth. We have bucked the trend of many other businesses in hospitality and leisure and our value for money customer proposition is well positioned to continue to deliver strong returns for our shareholders.”

The Equity – a good professional list

There are now 68.5m shares in issue, of which Harwood Capital owns 10.8m shares, representing some 15.8% of the equity.

Other large holders include Slater Investments (12.1%), Gresham House Asset Management (11.57%), Fidelity Management & Research (9.98%), BlackRock Investment Management (9.02%), GVQ Investment Management (5.13%), Otus Capital Management (5.03%), Canaccord Genuity Wealth (4.99%) and Premier Miton (4.71%).

Broker’s View – 400p price aim

Analyst Anna Barnfather at Liberum Capital, the group’s broker, rates the company’s shares as a Buy, looking for a raised price objective of 400p (370p).

She considers that Ten Entertainment Group is generating like-for-like growth, site growth and margin growth. She also states that the company is self-financing, has net cash and is now back paying a dividend.

Her estimates for the full year to end December are for sales of £114.6m (£67.5m), pre-tax profits of £25.0m (£3.1m), earnings of 27.7p (3.9p) and paying 9.0p (nil) per share in dividend.

For the coming year Liberum have sights upon £128.1m revenues, £29.0m profits, 32.1p earnings and a 14.6p dividend per share.

The 2024 year might see £139.8m takings, generating £31.9m profits, 34.8p earnings and paying a 15.8p dividend per share.

My View – an undervalued growth stock

Based upon Liberum’s estimates I reckon that is growth well worth paying for right now.

Ahead of a possible Trading Update for the full year to be issued in late November, I would suggest that this group’s shares at around the current 214p are way too cheap to be missed by investors looking for cash-generating undervalued growth stocks.

(Profile 02.10.20 @ 135p set a Target Price of 170p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)