MIDAS SHARE TIPS UPDATE: Hollywood Bowl has money payouts in its sights after suffering a rough time during Covid pandemic
Bowling is a fun, family-friendly outing, come rain, shine or snow. At around £6.50 a head, it’s also cheaper than some other leisure activity. That makes bowling a more attractive option when money is tight than many various pursuits, from eating out to cinema trips.
The industry had a rough time through the pandemic, with centres forced to shut for months on end. But business has rebounded this 12 months and appears to be holding up, despite all of the economic headwinds.
Hollywood Bowl is a working example. In a recent trading update, chief executive Stephen Burns revealed that profits for the 12 months to September 30 were ahead of market expectations, while revenues were 42 per cent higher than in 2019, the last 12 months before Covid disrupted the sector.
Attractive option: Bowling is a fun, family-friendly outing, come rain, shine or snow
Detailed results shall be unveiled on Friday but City brokers expect sales of around £185million and pre-tax profits of £45.3million, accompanied by a ten.5p dividend.
With the shares at £2.00, that puts the stock on a chunky 5.25 per cent yield, an indication of Burns’ confidence in the longer term.
There may be even talk of a possible special payout too, as the corporate has a history of returning money to shareholders.
Midas first checked out Hollywood Bowl in 2017, when there have been 58 sites and the shares were £1.89. Two years later, the group had expanded to 60 sites and today, there are 73, including six in Canada, following the acquisition of a business there earlier this 12 months.
Burns is a shrewd operator. He and his team used the pandemic period well, refurbishing older sites, installing latest skittle kit and upgrading booking systems. Now there are plans to expand the business here and in Canada, where demand is powerful but many venues are far more old-fashioned than their UK peers.
Hollywood Bowl will not be immune from inflationary pressures, however it is more resilient than many businesses. Energy contracts are fixed to 2024 and a big proportion of electricity is generated from the group’s own solar panels. Rental costs are under control and food represents just 8 per cent of total sales.
All because of this Burns has been capable of hold down bowling costs, keep meals competitively priced and offer staff a one-off cost-of-living payment in September and monthly bonuses, based on customer support and energy efficiency.
Brokers expect a small dip in sales and profits for the 12 months to September 2023 but a bounce-back in 2024, with dividends of no less than 9p for each years.
Midas verdict: Hollywood Bowl shares were hit hard by the pandemic but they’d risen to greater than £2.50 earlier this 12 months. Now, they’re £2.00, pummelled by fears in regards to the leisure sector more broadly. These concerns might prove overdone. Burns is ambitious, hard-working and determined. He has also run the group because it was founded in 2010, one other grim period. The shares are a powerful hold, while the dividend income might tempt in latest investors.
Traded on: AIM Ticker: BOWL Contact: hollywoodbowlgroup.com or 01442 840200
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