Ten Entertainment Group is a recovery play in the making

2020 was a terrible year for Ten Entertainment, but Mark Watson-Mitchell sees the group recovering quite strongly in the year to end-December 2021.

To say that Covid-19 threw a curve ball at this group would be an understatement.

In fact, as the second largest UK bowling and entertainment centre operator, it was knocked for two-thirds more than six.

This year’s results to end-December will be ghastly, with brokers forecasting that revenues will be down 30% at £60m, while 2019’s £15.4m pre-tax profit will be followed with a small £0.33m pre-tax loss.

On the face of it, there is not a lot going for the Ten Entertainment Group (LON:TEG). However, I think differently.

OK, you have to strike 2020 off as a bad year, but I do see the group recovering quite strongly in the year to end-December 2021.

The company has now opened all 46 of its UK entertainment centres, which boast some 1,000 ten-pin bowling lanes.

At each centre it also offers its customers, 30% of whom are children, a range of other entertainment options, such as its Houdini escape rooms, table tennis, pool tables, amusement machines, as well as soft play and laser tag games.

To help to generate more in-centre spending, Ten Entertainment has a food and drink offer that players can enjoy as they play away at the various attractions.

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.

There has been significant reorganisation of the centres after the lockdown ahead of them being reopened in late August.

On the re-opening the group introduced a new web-based ordering platform which allows its customers to order food and drink directly to their lanes or tables via a simple ‘quick response’ code. That enables customers to enjoy snacks, meals, and drinks without leaving the comfort of their lane or table and by way of a completely contact free ordering and payment system.

There are now ‘discrete’ bowling lane areas well suited to conform to the Government’s ‘Rule of Six’ guidelines. Initially the group will be operating within just 50% of its lane capacity, but importantly it is now cash generative again.

A £5m cash raising, by way of a placing of 3.25m new shares @ 155p each in late March, was a sensible move.

There are now 68.35m shares in issue, of which Harwood Capital owns 16.1m shares, representing some 24.72% of the equity.

Other large holders include Fidelity Management & Research (10%), Slater Investments (9.54%), Henderson Global Investors (9.13%), BlackRock Investment Management (5.34%), Gresham House Asset Management (5.27%), Canaccord Genuity Wealth (5.0%), AXA Investment Managers (4.98%), and Premier Miton (4.72%).

The coming year could well see the group generate £86m of revenues and recover to some £13.75m pre-tax profits, worth nearly 17p in earnings and sufficient to cover a dividend of 8.5p per share for 2021.

With its shares, which were up to 339p in January this year, now trading at around 135p and cheaper than the March fund raise, they look to me to be an excellent 2021 recovery play.

Broker Liberum considers that the 2022 year will be even better, and it rates the shares as a ‘buy’ with a price objective of 310p.

That is a longer-term view – even so, I now set a target price of 170p.