- Robust UK performance in face of cost-of-living pressures
- Encouraging outlook statement
- Strong outturn from Canada
Value-for-money ten-pin bowling and mini-golf operator Hollywood Bowl (BOWL) delivered record sales for the half to 31 March 2023 and issued an encouraging outlook statement that sent shares in the Hemel Hempstead-based business 1% higher to 262.5p.
Hollywood Bowl expressed confidence that resilient demand would continue as cash-strapped customers sought out value-for-money leisure experiences and investors were also pleased with news of a stronger-than-expected performance from its Canadian business.
RESILIENCE TO SPARE
The UK and Canada’s largest ten-pin bowling operator shrugged off the impact of the cost-of-living crisis on consumer spending to generate record first half revenue of £110.2 million.
Hollywood Bowl also achieved a 13.2% rise in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to £35.1 million, some £2 million ahead of Shore Capital’s forecast and significantly above the £21 million delivered in the pre-Covid half to March 2019.
Pre-tax profits rose 7.7% to £26.7 million, with Hollywood Bowl delivering like-for-like sales growth of 3.5% despite demanding prior year comparatives.
And the cash-generative company also delighted investors with a 9% hike in the half-time payout to 3.27p.
STRONG SHOWING FROM CANADA
Hollywood Bowl’s new centre-opening programme is on track in both the UK as well as in Canada, a market the company first entered in May 2022 through the acquisition of Splitsville before following this up with further acquisitions during February 2023.
Hollywood Bowl reported a £3.1 million EBITDA contribution from its Canadian business, which is performing ahead of management expectations, on sales of £11.3 million.
POSITIVE OUTLOOK
In its outlook statement, Hollywood Bowl said it continues to trade in line with the board’s expectations for the year to September 2023. ‘As we navigate the current economic landscape, we understand that many of our customers are facing challenges such as rising living costs and higher interest rates,’ explained the company.
‘This is why we continue to focus on providing a high-quality leisure experience that offers great value for money.’
Chief executive Stephen Burns said his charge was ‘looking forward to driving further growth in the UK and Canada, capturing the significant market opportunity ahead. Our resilience to inflationary pressures, strong balance sheet and cash-generative model gives us confidence in the future as we continue to invest so that our customers have the best experience possible in our centres.’
EXPERT VIEWS
AJ Bell investment director Russ Mould said Hollywood Bowl looks to have ‘scored a strike with its 2022 acquisitions in Canada, judging by its latest first half results which revealed a strong contribution from this part of the business.
‘There is a genuine bowling culture in Canada which may well be receptive to Hollywood Bowl’s approach of reviving tired and grimy bowling alleys and giving them a bit of shine.’
Mould said this approach is continuing to serve the company well in the UK too.
‘While it’s often said there is nothing a company can do about inflationary pressures, that’s not strictly true, with Hollywood Bowl benefiting from management’s prudent decision to hedge its energy costs out to 2024.
‘While the pressures on consumer spending are clear people still need an escape from the day-to-day grind and bowling remains a relatively inexpensive and family-friendly option.’
Following the strong results, Berenberg raised its estimates and increased its price target from 360p to 370p.
‘With its market-leading position in the UK and growth opportunities in Canada, the continued cash flow generation of the business, the success of its refurbishment and new centre opening strategy, our confidence in the company’s future prospects are further reaffirmed by this set of results,’ said Berenberg.
Shore Capital stuck with its ‘buy’ rating following the results, seeing fair value of ‘at least 300p per share’ and arguing Hollywood Bowl’s valuation metrics are ‘low given the strengthen of trading, building pipeline and strong returns.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.
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