Hollywood Bowl announces £10mn share buyback

Ten Entertainment (TEG) being taken out by a US private equity firm has put bowling operator peer Hollywood Bowl (BOWL) under the spotlight. And the company didn’t disappoint with its full year results, unveiling a £10mn share buyback programme as it got more bowlers through its doors. 

Double-digit revenue growth led to a top-line record as like-for-like (LFL) uplifts were posted across bowling, food, drink and amusements. The approach of keeping prices down continues to find success, with UK LFL game volumes and average spend per game up by 0.7 per cent and 3.4 per cent respectively against last year. The most popular food products are cheaper than 2019, so punters were buying more to push spend per game up by 9.9 per cent. 

At the same time, Hollywood Bowl's pre-tax profits slipped because of higher costs, but were still well ahead of pre-pandemic levels. The incoming increase in the national living wage is expected to have an annualised £1.2mn impact. 

On the return of capital, alongside the buyback (supported by a year-end net cash balance of £52.5mn excluding lease liabilities) investors will gain from the board's decision to increase the ordinary dividend pay-out ratio from 50 per cent to 55 per cent of adjusted post-tax profits. 

The future looks bright. Management is bullish on the prospect of growing the estate from 82 sites to at least 130 centres in the UK and Canada by 2035. Capex is expected to come in at £35mn-£40mn in 2024, which includes acquisition spend. LFL revenue growth of 15.1 per cent in Canada sets the company up well for future progress there. 

The shares trade hands at 13 times forward consensus earnings, which in our view undervalues the potential of a highly attractive leisure sector pick. Buy.

Last IC view: Buy, 263p, 30 May 2023