Hollywood Bowl’s strike
The British ten-pin bowling venue operator has an excellent record
The past few years have been gruelling for the hospitality industry. The entire sector was put on life support during Covid due to lockdowns, and since then it has been forced to grapple with rising inflation, staff shortages and cash-strapped consumers cutting back. No wonder, then, that data from the one of the main trade bodies suggests that 6,000 pubs, restaurants and bars closed their doors for good in 2023. Yet just because the overall sector is doing badly doesn’t mean that individual firms can’t do well.
One company that continues to prosper despite the tough environment is Hollywood Bowl (LSE: BOWL). Despite what its name suggests, Hollywood Bowl is actually a British company, the UK’s largest ten-pin bowling operator, with 71 centres around Britain (as well as 11 in Canada). It also has a small, but growing minigolf business.
These allow it to make money from both the activities on offer and the food and drink that it sells at its locations. While this business model is not unique, Hollywood Bowl’s management team has a very good record of generating consistent disciplined growth, without putting the firm at risk by trying to expand too quickly, which has been a problem with similar firms.
Staying ahead of the game
In addition to expanding the number of locations, Hollywood Bowl has reinvested significant sums in its venues to stay ahead of its competitors and ensure customers keep coming back. This has enabled it to achieve relatively high customer satisfaction rates and solid likefor-like revenue growth.
When you also factor in the programme of continuous expansion, it is no surprise that Hollywood Bowl’s revenues have shot up from £130m in 2019 to £215m last year, marking an annual growth rate of around 13%-14%.
Subsiding UK inflation, along with tentative signs of economic recovery, should help Hollywood Bowl keep growing at a similar rate over the next few years. Hollywood Bowl’s gradual move into Canada, with the acquisition of the owners of the Splitsville chain in 2022, followed by three other small Canadian bowling businesses in the city of Calgary last year, gives it further room to expand. The company also boasts operating margins of around 25% and a return on capital employed, a key gauge of profitability, of 15%, which last year enabled it to start paying a dividend. Nevertheless, the stock is still valued at a more than reasonable 15 times 2025 earnings, with a solid dividend yield of 4%.
In addition to strong fundamentals, Hollywood Bowl also looks attractive from a technical perspective, trading above both its 50day and 200-day moving averages. The shares are up by 33% over the last six months. I therefore suggest that you go long at the current price of 339p, at £14 per 1p. I would put the stop-loss at 270p, which gives you a total downside of £966.
“The stock looks reasonably valued on 15 times 2025 earnings and yields 4%”