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Ten Entertainment looks undervalued even after exceptional year

Ten Entertainment looks undervalued even after exceptional year

Ten Entertainment Group LON:TEG, the Bedford-based operator of bowling alleys and family entertainment venues, published its half-year results to the week ending 2nd July today (20th September).

As we have previously reported the leisure sector has had a tough time. Covid-19 was disastrous for cinemas, theatres, hotels, pubs and restaurants, bingo halls and bowling alleys, as these retail-facing businesses had to shutter their outlets and furlough or retrench staff during the lockdown period. Brexit also caused the sector staffing issues, as the availability of potential workers to clean hotel rooms, work in kitchens and fill a significant chunk of the leisure sector’s vacancies evaporated when the UK left the EU, and the sector underwent a human resourcing crisis.

The lockdown was a significant factor in the decline of global cinema chain, Cineworld LSE:CINE, which The Armchair Trader reported extensively upon. But post-Covid, a pent-up reservoir of demand was released, and people flooded out into entertainment venues, and the leisure sector had a post-Covid renaissance.

Economic uncertainty plays into analyst’s pessimism

However, 2022 was a year of inflation – which cut into the sector’s paper-thin margins – and economic uncertainty which aggregated into a national cost-of-living crisis. Analysts warned that 2023 would be shaped with consumers adapting their behaviours, adopting recessionary shopping measures, including trading down to cheaper items, delaying large purchases, discount hunting and cutting luxury and leisure expenditure.

Paul Newman, retail analyst and head of leisure and hospitality for management consultancy RSM said: “[…] on the demand side, rising interest rates are now the cause for concern, ahead of inflation, with market analysts predicting a peak of over 6%. This is great news for savers but will hinder the prospects of stronger consumer spending in the second half of the year due to the delayed impact of rising mortgage rates. For many operators who have been relying on a more positive trading environment in the second half of the year, this is unwelcome news.”

However, it seems that to the benefit of some businesses, consumers just can’t seem to give up on a night out, presumably as a form of escapism, and escape rooms and bowling alleys seem to have maintained their popularity, especially with the ‘young family’ and ‘Millennial’ and ‘Zoomer’ consumers, who also appreciate a group experience or a meal-out now-and-again.

Bucking the trend

We recently wrote about Loungers LON:LGRS, the Bristol-based restaurateur reporting record end-of-year revenues, which had plans to double-down on investment in new outlets and menus. Hollywood Bowl LON:BOWL, one of Ten Entertainment’s direct competitors also bucked the trend seeing a 20.7% uptick in half-year revenue and 17.5% increase in profits, awarding investors with a 9% increase in dividends. Given the backdrop of rising costs and uncertainty over the consumer outlook these appear to be solid sets of results and strike out the economists’ pessimistic forecasts.

So, to Ten Entertainment. Well in its full-year results to end-December 2022, Ten Entertainment  delivered its highest ever sales and profit in its history and  ended the year with no bank debt and over GBP10m of cash.

Total sales for 2022 were GBP126.7m, a 50% increase year-on-year over 2021. This was helped by the fact that the company was able to keep its bowling alleys open uninterrupted for a full year – a luxury it did not have in 2021 and 2020.  Profit after tax was GBP26.6m, a whopping 194% higher that the year before. Strr-iiike!

2022 a hard act to follow

2022 was quite an act to follow, and obviously the company couldn’t maintain that pace over the long distance, but still managed to increase six-month sales by 3.3% year-on-year to GBP65.3m, although EBITDA was down 1% to GBP28.5m. Ten Entertainment announced an interim dividend of 3.5p/share to be paid in October, an increase of 16.7% compared to last year, reflecting the continued strong and profitable growth in the business. The company has reacted to the cost-of-living crisis by freezing its prices at 2019 levels to keep its bowling (and escape-room-ism) affordable by families.

The leisure company also opened up three new outlets with one more due in Sheffield, South Yorkshire, later this year, bringing its venues up to 52 nationally; still a bit behind Hollywood Bowl’s 73 venues. Ten Entertainment also refurbished seven of its existing venues.


Graham Blackwell, Ten Entertainment’s CEO said in a statement to the market this morning: “Our business continues to increase in scale and is in better shape than ever. We had already achieved 2019’s full year sales by August with acceleration of like-for-like sales over the summer and our profit for the first half of this year is greater than our total 2019 full year profit.”

Reasonably optimistic in outlook, Blackwell said the company is continuing its refurbishment programme and looking into 2024 expects to open another four venues. Cost control has been high on the bowling alley operator’s agenda, locking-in energy prices to September 2026 and negotiating supply contracts that will shelter it from the effects of further inflation.

Ten Entertainment is debt-free and cash-positive

Although debt-free and expecting to end the year cash-positive, Ten Entertainment renegotiated its GBP25m revolver with RBS for a further three years, expanding the facility to GBP30m to give it headroom for growth and reserves in the event of another unexpected downturn.

The summer has been good for Ten Entertainment, with year-on-year, like-for-like sales to 10th September up 4.7% on where the company was this time last year and is expecting to end the year at the top end of market profitability expectations of GBP25m to GBP26.1m profits.

Ten Entertainment opened the day at 284p and was up to 290p within the first hour of trading. Over the year-to-date its shares returned 15.5% and over one-year 50.3%. The company has a market cap of GBP194.5m and its shares have ranged between 186.6p and 307.3p

There is room still for this stock to move up and analyst consensus believes that Ten Entertainment is still undervalued according to fair value, with current trading at around 24% below fair value. Even in tough times, and after an exceptional year the company has consistently continued to grow its sales, revenues and profits.

The company is still vulnerable to market downturns and declining consumer confidence. It hasn’t a long history of dividend growth and new venues aren’t cheap, so it has to commit fair chunks of capital to every new property, but this stock is definitely one to consider at this current price.

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