Hollywood Bowl LON:BOWL the Hemel Hempstead-based operator of 10-pin bowling arcades and mini-golf courses has been slowly recovering from its low-point in 2020 at the height of the Coronavirus pandemic.
The leisure sector as a whole was battered during lockdown, a period that precipitated the collapse of Cineworld LON:CINE and significantly affected the financial health of restaurants, hotels and pub chains such as JD Wetherspoons LON:JDW; a situation that the sector is just emerging from now, three years on.
Hollywood Bowl’s share price fell to a record low in 128.57p in October 2020 but is currently trading at a reasonably healthy 260p today (18th April), and has offered a 3.6% year-to-date return, albeit being down -2.5% from where it was a year ago, with its shares ranging between 161.4p and 279.5p over a 52-week period. The company has a market capitalisation of GBP436.2m.
Since 10-pin bowling arrived on these shores in 1960 (an import from ‘Golden Age US’ where it was all-the-rage in the 1950s) when ABC Cinemas opened the first commercial 10-pin bowling alley in Stamford Hill, the ‘sport’ has grown and now there are over 500 bowling alleys in the UK.
Bowling is one of the most popular leisure activities
Popular with families looking for something to do with the kids during the school holidays, or as a safe and enclosed birthday party venue as it is with corporate clientele looking for boozy team-building events, bowling is now the country’s third most popular leisure activity [according to a YouGov survey] after going to the pub and taking in a movie.
Hollywood Bowl has since 1985 been riding the crest of this wave and in its most recent results update reported record first-half revenues and said it is confident about the business prospects for the rest of the year.
Revenues for the company were up 10.8% to GBP111.1m in the six-months to end-March 2023 compared to the same period last year, with 3.5% like-for-like growth. The company will release its half-year’s in May and will advise the market on its dividend payout at that point. It is important to note that Hollywood Bowl has paid a dividend every year since 2017 and over the last five years the dividend has increased from 8.5p to 13.5p, increasing year-on-year except in 2020 where it was flat.
From one site in Watford in 1985, today Hollywood Bowl operates bowling alleys and mini-golf courses across the UK and Canada. In Canada the company reported revenues of GBP12.2m, which was in line with expectations, and as a group generated GBP44.1m in cash, slightly down on the GBP49.6m it made the year previously. The company listed on the LSE in 2016.
Hollywood Bowl is a highly cash-generative business
Stephen Burns, the company’s CEO said: “We are excited about the significant growth opportunities ahead – our highly cash-generative business model and insulation from cost of goods and energy inflationary pressures, leaves us well-placed to continue to expand and invest in our portfolio, both in the UK and Canada,” although Burns did note that the general economic picture was concerning.
The company has put aside its concerns, and with a good Easter, and slightly better economic news, should post a strong set of results next month.
Shore Capital, which has Hollywood Bowl under coverage has the company as a ‘Buy’ at 245p. Greg Johnson, a research analyst for the broker said: “Against highly challenging comparatives, that Hollywood Bowl has been able to deliver further year-on-year, like-for-like (LFL) growth in 1H23 was highly-impressive and significantly above our forecasts. We have raised our UKFY LFL assumptions from -7% to -1% and our EBITDA estimate by GBP6m to GBP55.5m (EPS: 19.7p). On 7x EBITDA, Hollywood Bowl trades at a marked discount to historic metrics.”
He continued: “We continue to be pleasantly surprised by the enduring strength of the offering, the pipeline is building, the estate is well invested and the balance sheet strong. Our 310p/share fair value is consistent with past metrics and we reiterate our ‘Buy’ stance.”
The broker expects earnings and dividends to increase in the next set of results and notes that: “Hollywood Bowl has an excellent track record on investment and innovation, which supports both organic and inorganic growth.”
Bridgewise, from a fundamental standpoint, however, had Hollywood Bowl as an ‘Underperform’, giving the stock only 58/100 stating: “Their growth and income factors indicate a poor execution and strategy, which isn’t generating exciting growth. These results indicate a weak growth potential for Hollywood Bowl’s stock’s price moving forward.”
Hollywood Bowl – in terms of share price – hasn’t been the most exciting stock – no triple-digit returns here, but a 20 percent-ish appreciation over the last five years has been reasonable. However, the company has been a consistent dividend performer and would be a good income-generator to stash away and earn off over the longer term.
