American themed casual dining brand company Hostmore (MORE) delivered better than expected maiden full year results to 2 January 2022.
However, the shares dropped 13% to 80p after investors were spooked by disappointing recent trading which saw like-for-like sales drop 3% over the last eight weeks to 27 February compared with 2019.
PENT-UP DEMAND
Hostmore was spun-out of Electra Private Equity and listed on 2 November 2021 at 156p.
It operates the iconic Friday’s casual dining chain and a cocktail-led bar and restaurant brand 63rd and 1st. It also plans to roll-out a capital light Quick Service Restaurant format.
The lifting of restrictions between May and December last year led to a strong recovery in activity with like-for-like sales growing 4% ahead of pre-pandemic levels despite some disruption to trading caused by Omicron.
Sites located in the north east of England and Scotland outperformed other areas while retail parks experienced higher footfall than city centre locations.
Revenues increased 23% to £159 million but remain 26% below 2019 levels while EBITDA (earnings before interest, taxes, depreciation, and amortization) was £21.5 million compared with £1.5 million last year, ahead of market expectations.
Cost mitigation and rent concessions limited the fall in EBITDA to 7% compared with pre-pandemic trading.
Lower capital expenditures helped drive free cash flow to £30 million compared with £20 million. This represents operating cash minus maintenance capital expenditures.
The company finished the period with reduced net debt of £12.2 million. Cash of £32 million and unused credit facilities of £20 million provide ‘significant’ liquidity headroom to fund future growth.
STRATEGY
Having repositioned the business under new management the company’s strategy is to expand organically with six sites planned for 2022 and seven sites per year thereafter.
These include three Fridays’s, two 63rd and 1st’s, and its first Quick Service Restaurant due to open shortly in Dundee. This represents 7% growth in the estate.
Hostmore also plans to make selective acquisitions in uncluttered parts of the restaurant market targeting smaller family-owned ‘smart disrupter’ brands that need capital to grow.
Numis travel and leisure analyst Tim Barrett reiterated his buy recommendation, commenting: ‘We forecast the business to degear rapidly, with net cash by 2023. We expect a rerating as the company raises its profile and delivers strong FCF.’
