Cafe cum bars operator Loungers (LGRS:AIM) continued its expansion push in the first half with the doors flung open on 10 new sites (eight Loungers and two Cosy Clubs). This leaves the ambitious company on track for 25 new sites by the time the full year closes at the end of April 2020.
Loungers operates a unique all-day trading model that means combining the feel of a coffee shop, pub and restaurant under one roof. The company believes this approach has broad demographic appeal versus traditional pubs, bars and high street coffee chains.
So far, so good. Loungers reported a 22% rise in revenues in the 24 weeks to 6 October to £79.8m, boosted by the new sites. Underlying growth, which strips out new outlets, was 5.4%, although margins did improve.
Investors appear sanguine, accepting the progress reported and near flawless execution by management but with an eye on what remains a hugely competitive environment. This latter point might explain the modest progress of the share price since the firm's IPO in April at 200p.
The stock nudged close on 3% higher today to 203p.
FIRING ON ALL CYLINDERS
Increased scale remains key. As the estate expands it allows the company to drive extra operating efficiencies and improve profit margins. These expanded by 0.9% to 41.5% at the gross profit level and nudged 0.4% higher to 12.8% on an adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) basis during the period.
That's despite cost headwinds, especially now that Loungers must carry the extra expense of its stock market listing.
Most impressive of all was the 44% growth in cash generated from operations, to £9.2m. This was achieved against the negative impact of September rent payments.
The company benefits from negative working capital as the business receives cash from customers before it has to pay suppliers. Store expansion is therefore a positive for cash flow.
POSITIVE OUTLOOK
Chief executive Nick Collins commented, ‘looking ahead, the strength of our full year 2020 openings to date and the continued evolution of our offer further underpins our confidence in continuing our current growth rate of 25 new openings per year and the potential for more than 400 Lounges and 100 Cosy Clubs across the UK.’
Brokers Liberum and Peel Hunt have upgraded their 2020 earnings per share forecasts by 2% and 3% to 10.1p and 10.5p respectively.
Liberum said ‘expansion headroom is vast and we have a high degree of confidence in growth forecasts’, which are currently anticipating roughly 21% of compound annual growth in EBITDA over the next three years.
