Hollywood Bowl looks good value and reports record revenues

Anyone who has ever thrown a gutterball knows that it comes with a unique feeling of humiliation. But fear of embarrassment hasn’t kept the nation’s bowlers away from their local lanes — and nor, it seems, have protracted cost of living pressures.

Hollywood Bowl (BOWL), the operator of more than 71 bowling centres in the UK, posted a record revenue figure in the first half of FY2024. Its adjusted Ebitda also rose 10 per cent due to an ongoing cost-efficiency drive. Management claims Hollywood Bowl is well insulated from inflationary pressures given 72 per cent of its sales are not subject to cost of goods inflation.

In its home market, like-for-like sales increased 1.3 per cent across the first half, with spend per game up 3.2 per cent to £11.21. Things were even better in Canada, where the group has 11 centres, and turnover was 8 per cent higher than the prior year. With an estate this large, frequent renovations are a fact of life –  and three such projects were completed across the six months to the end of March. As a result, net cash fell by £11mn to just over £41mn. 

The £19mn dividend payment and additional investment in new sites also ate into the group’s cash reserves. Going forward, Peel Hunt analysts said they “expect the company to prioritise investment over share buybacks” – and this is certainly in keeping with management’s ambitions. According to chief executive Stephen Burns, the group is hoping to grow its empire to more than 130 centres in the next 10 years. 

Investec analyst Roberta Ciaccia said the company is on track to hit its FY2025 targets of 80 sites in the UK and 14 in Canada. “In addition, the static pricing maintained over the past years suggests potential for increases in the future,” she added.

FactSet broker consensus puts Hollywood Bowl’s full-year price/earnings multiple at an undemanding 15, which we think constitutes good value for a cash-generative leisure stock. 

It’s also worth noting that the enterprise value to Ebitda multiple is hovering around around 7.8 times – compared with a pre-pandemic average of 8.3. 

Whether people are still eager to bowl in the second half, when both the Euros and the Olympics are taking place, remains to be seen. In any case, the longer-term growth trajectory seems clear. Buy.

Last IC view: Buy, 286p, 18 December 2023