Loungers benefits from move to value dining

Unlike many industry peers, the management team at hospitality group Loungers (LGRS) is feeling optimistic about the future. “Just because a number of over-leveraged casual dining brands have failed over the last few years doesn't mean that casual dining is totally broken,” chair Alex Reilley said in a statement.

The company’s own results appear to confirm that there’s some momentum in the sector – despite a multitude of post-pandemic challenges. Loungers, which operates through the Lounge and Cosy Club brands, achieved its highest-ever revenue and opened a record 29 new sites. 

In its full-year results, management also highlighted the fact that Loungers’ adjusted Ebitda figure (£47.3mn) has grown 66 per cent since its 2019 IPO. However, its adjusted Ebitda margins were 140 basis points below what they were four years ago due to labour and cost headwinds. 

According to broker Peel Hunt, the company is hoping to restore its pre-Covid margins in the medium term via “new purchasing contracts, ongoing operational efficiencies and scale economies as the estate expands”. Price increases and supplier renegotiations helped Loungers to slightly increase its food and drink margin in the period.

Fellow hospitality group JD Wetherspoon (JDW) recently reported growing sales as consumers seek out more affordable food and drink options. With its stated commitment to “core value for money principles”, Loungers could also prove to be a beneficiary of this trend.

FactSet broker consensus puts its forward price-to-earnings multiple at 22.2 times for the current financial year, which strikes us as slightly steep. We’d like to see stronger evidence of margin improvement before we’re fully convinced. Hold.

Last IC View: Hold, 193p, 11 November 2022