Hollywood Bowl reports record revenue

Ten-pin bowling was a big hit when pandemic restrictions were lifted. With their cheap, family-friendly offerings, the likes of Hollywood Bowl (BOWL) and Ten Entertainment (TEG) enjoyed a surge in popularity in 2021 and 2022, which translated into bumper profits. The question for investors was whether this growth was sustainable, or whether demand would wane as the memory of lockdown retreated. 

So far, so good: revenue at Hollywood Bowl increased by 10 per cent in the first half of 2023 to £110mn. It’s important to note that hospitality businesses paid a lower rate of VAT between July 2020 and March 2022, as part of the government's Covid support package. This means that Hollywood Bowl’s 2022 figures were unusually high. When the VAT benefit is stripped out, year-on-year growth for 2023 is even more impressive at 21 per cent.  

Organic sales growth was slower at 3.5 per cent. Against tough comparators, however, the group still managed to increase game volumes by 0.6 per cent and boost spend-per-game by 2.8 per cent. Management has been reluctant to raise prices too much, though, stressing that it still offers the “best value for money product of all the branded UK bowling operators”, with a family of four able to bowl at peak times for less than £25. 

Management’s fixation on value for money does mean the group is at the mercy of cost pressures. Administrative expenses jumped by 23 per cent year on year, driven by wages and property. The situation was made worse by the rise of lower-margin amusements, which are growing at a higher rate than bowling. As such, the group’s statutory profit before tax shrank by 20 per cent to £26.7mn. 

Once again, however, the situation is brighter when the impact of the VAT reduction is removed. Meanwhile, the group is making good headway with its expansion strategy: 2023 will be a “record year of investment in the estate” and it is on track to open at least three new venues. 

Investors are still wary of leisure stocks, and Hollywood Bowl is trading on a forward price/earnings ratio of just 13, compared with a five-year average of 18. It has been cheaper, but we believe this still represents an attractive entry point. Buy.

Last IC View: Buy, 238p, 16 Dec 2022