The Brighton Pier Group – This group’s shares are substantially undervalued

Ooh I do like to be beside the seaside – especially if I am visiting the famous Brighton Pier.

Or playing mini-golf or visiting the Lightwater Valley or ending the day drinking in Eclectica.

But better than all that I really do like the shares of The Brighton Pier Group (LON:PIER).

Now, in my view, my current price objective will soon be beaten and in the near term we could see the shares double in value.

I featured the group in a profile on 30 June, when its shares were 61p.

In early August they were up to 73p but subsequently slipped away to a recent low of 48.5p, at which level they were traded last Wednesday.

Unexpected guidance

On Friday morning a Trading Update was reported, the shares shot straight up to 68p, before closing that night at around the 62.5p level.

At anywhere near that price, I believe that the shares of the Brighton Pier Group are an outstanding purchase.

Ahead of the actual results being declared later this month, last Friday morning’s statement covered the year that ended on 27 June.

It also presented an Update on the subsequent 13 weeks to 26 September.

And the contents of that release were very significant to the future valuation of the group and its growing assets.

We already knew that there was going to be a big drop in revenues for the last trading year, due to all of the lockdowns, so it was very pleasing to see that the group was insured for Business Interruption.

What is more the insurance companies have actually settled the group’s claims in full.

A major profit upgrade

The company’s brokers, Cenkos Securities, were previously expecting a £3m settlement – the group has received £5m in total so they had to rapidly upgrade their estimates.

And, in my view, that makes this group’s shares very attractive.

Just to remind you about the group’s business

Not only does the company own the Brighton Palace Pier, but it also operates nine premium bars nationwide, eight indoor mini golf sites and the recently acquired Lightwater Valley theme park in North Yorkshire.

It now operates as four separate divisions – Brighton Marine Palace and Pier Company, Eclectic Bars,Paradise Island Adventure Golf, and finally Lightwater Valley Attractions.

Brighton Marine Palace and Pier Company 

This side operates the family-friendly Brighton Palace Pier, one of the leading tourist destinations in the UK.

It has a wide range of attractions including two arcades with over 300 machines and eighteen funfair rides, together with a variety of on-site hospitality and catering facilities.

The pier is free to enter, with revenue generated from the pay-as-you-go purchase of products from the fairground rides, arcades, hospitality facilities and retail catering kiosks.

Eclectic Bars

This division owns and operates nine bars which trade under a variety of concepts including Embargo Republica, Lola Lo, Le Fez, Lowlander and Coalition.

The bars estate is based in key university cities and towns that provide a vibrant night-time economy and the demographics to support premium bars. 

They target sophisticated student’s midweek and stylish over-21s and professionals at the weekend, by delivering premium product ranges, high quality music and entertainment.

Paradise Island Adventure Golf 

The golf divisionoperates eight indoor mini-golf sites at high footfall retail and leisure centres. Looking to capitalise on the convergence between retail and leisure, offering an accessible and traditional activity for the whole family.

There are sites in Glasgow, Manchester, Sheffield, Livingston, Cheshire Oaks, Derby, Rushden Lakes, and in Plymouth, with each site offering two unique 18-hole mini-golf courses.

Lightwater Valley Attractions 

Acquired in mid-June for up to £5m cash, this part of the group owns and operates the Lightwater Valley Theme Park, which is a leading North Yorkshire attraction, set in 175 acres of landscaped parkland.

Focused on family days out, it offers a variety of attractions with rides, amusements, crazy golf, children’s outdoor and indoor play, entertainment shows, together with numerous food, drink and retail outlets.

As well boasting the longest roller coaster in Europe, it also provides popular seasonal events including Hallowe’en and Christmas.

The Trading Update

Those insurance claims relate to the group’s losses that were incurred in the last trading year. That means that the 2021 finals are now expected to be £2m higher than market expectations.

But what shouts out from the Update is the fact that the first 13 weeks of the new year have started very strongly.

Due to the summer weather, school vacations and the August bank holiday weekend, those summer weeks have historically contributed significantly to the group’s annual sales and earnings.

The key period this year has been further boosted by a number of factors including pent-up demand and disposable incomes, by significant increases in the UK domestic holiday market, by a temporarily reduced VAT rate and rates relief through Government support.

It also helped to have added the Lightwater Valley theme park just in time for this important trading time.

All four divisions were mostly opened throughout, taking sales for the Q1 up to £15.9m.

The August Bank Holiday week saw the group take in over £1m – a record figure for just one week’s revenues.

Far better than expected, the total was an incredibly impressive 145% increase over 2020, and even 44% ahead of the same period in 2019.

Better than expectations

Now it is apparent that, as a result of the strong summer trading performance, the group has given guidance that revenue and earnings for the current year will be significantly ahead of market expectations.

Broker’s estimates lifted significantly on Friday

Analyst Peter Renton, at Cenkos, rates the shares as a ‘buy’, he is going for £37m of revenues (£16m est) pushing EBITDA up to £10m (£5.2m est).

His estimates now progress earnings up from a negative 5.3p in 2020, to 4p for the 2021 end June year, then a magnificent 11.9p per share for this current year.

My View

On Friday the dealing volume was almost 15 times the daily average.

They closed at 62.5p, which puts the shares out at an extremely underrated 5.25 times current earnings – they could well double within the next few months and still look cheap.

And that is without Luke Johnson and his board sanctioning any other accretive acquisitions during this year – and we know that the group is highly acquisitive.

I am now emphatically stating that, in my view, the shares of The Brighton Pier Group are a very strong and immediate purchase.

(Profile 30.06.21 @ 61p set a Target Price of 75p)