All-day bar/café/restaurants operator Loungers (LGRS:AIM) continued its sector leading like-for-like sales growth in the 24 weeks to 1 October and opened 16 new sites, putting it on track to open a record 34 sites in the current financial year.

The assured performance was well received by investors with the shares gaining 3.3% to 193.25p in early trading, leaving them up around 7% since the start of the year.

SALES GROWTH ACCELERATES

First half revenue increased 22.3% year-on-year driven by new site openings and like-for-like sales growth which accelerated to 7.7% from 5.7% in the 12-weeks to 9 July.

Compared with the 24 weeks to 6 October 2019, the last interrupted period before the start of the pandemic, sales are up 25%.

CEO Nick Collins commented: ‘Our consistent sales growth reflects the continued evolution of our offer and the resilience of the UK consumer and high street.

‘We have now opened 34 sites in the past 12 months, creating around 1,000 jobs in the process, and 72 sites since the last Covid lockdown. With a great pipeline of further openings in front of us I have never felt more optimistic about our prospects.’

WHAT ARE THE EXPERTS SAYING?

AJ Bell investment director Russ Mould commented: ‘Loungers’ model of offering mid-market prices and opening up in different guises as cafés, restaurants and bars throughout the day is a successful one, with the company able to squeeze the most out of all of its sites.

‘The company is also notably getting some relief from inflationary pressures.’

Greg Johnson, leisure analyst at Shore Capital, noted like-for-like sales growth was tracking ahead of his expectations of 5% for the full year to 16 April 2024, creating ‘upside risk’ to his forecasts.

‘We believe that each 1 percentage point of like-for-like upside is equal to circa £1 million of EBITDA (earnings before interest, tax, depreciation and amortisation) which we have in at £39.2 million for full year 2024.’

Since floating on AIM in 2019, Loungers has increased its sales footprint by 63% while EBITDA has almost doubled. Despite this success, the shares are trading at a similar level to their IPO (initial public offer) price.

TAKEOVER POTENTIAL?

Given recent takeovers in the sector, Johnson reckons there is upside risk to the group’s valuation which is trading on a forward EV (enterprise value) to EBITDA multiple of 4.7 times. EV is the total value of a company including net debt.

This represents a 35% discount to the takeout multiple paid for both Fulham Shore and Wagamama owner Restaurant Group (RTN), which has agreed to be taken over by private equity group Apollo.

Should the valuation uplift fail to materialise, Johnson senses ‘other pools of capital will continue take advantage of record low valuations in the sector’.

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (James Crux) own shares in AJ Bell.

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