What you will Learn
-The Ten-pin Bowling Industry and the company’s growth strategy.
-The cost of maintaining and refurbishing each centre.
-Share Price forecast.
Business Brief
Hollywood Bowling is a ten-pin bowling company.
The company was formed in 2010 from the merger of three separate businesses: Hollywood Bowl, AMF Bowling and Bowlplex.
Today, it has 57 centres in operations.
Market Opportunity
According to “Unconfirmed” (no link and from the Hollywood Bowl website) research done by Pragma. It says the UK leisure market is worth £80.3bn in 2015. Within that figure, ten-pin bowling controls 0.3% or £240m.
However, the ten-pin bowling is growing at 6% per annum vs. the wider industry growth rate of 3%.
Revenue Breakdown
Leisure companies like Ten-pin bowling, cinemas and nightclubs don’t solely rely on bowling, movies and attendance fees as their main source of income. There are food and drinks and other sources of income.
For Hollywood Bowls, 48% of revenue comes from bowling, 28% from food and drinks and the rest from amusement machines.
Growth Strategy
Management is seeking to open two new centres per year. If not, they will acquire existing bowling sites. This year they open 3 new centres.
Hollywood Bowling’s Financials
Sales grew 55% from 2013 to 2017.
In 2015, net interest paid was £8.3m on total borrowing of £92.3m and consumes 64% of its operating profit.
This year, net interest costs fell to £1.1m. Thanks to lower borrowing costs and absent of paying loan note interest of 7%, which was part of the deal when listing in the market.
And thanks to the IPO, the level of debt got reduced to £29.4m.
Brokers’ were forecasting 10.6 pence per share and actual was 12.17 pence, hence it beats forecast. Also, it beats 2018’s EPS of 11.9 pence.
Unless something adverse happens, next year investors could see EPS of 14 pence.
There is a £75m worth of goodwill on their books.
Not a worry, if profits are stable.
Cash flow generation is strong at £28m and generating free cash flow of £15m.
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