HOLLYWOOD BOWL (BOWL)
We believe the market may favour well-invested, highly cash-generative companies with minimal debt and undemanding equity valuations going into 2019. Hollywood Bowl has all these characteristics and offers slow but steady growth potential, plus scope for decent dividends over the long term.
Bowling is affordable and a nice treat. In tougher economic conditions we still want a break from the stress of work and life and bowling is often the destination of choice to relax and get away from it all.
The company wouldn’t be entirely immune from an economic downturn but we feel it would be more resilient than many other consumer-facing businesses.
Hollywood Bowl has 59 sites in the UK, nine of which were refurbished in its past financial year and a further seven to 10 centres will be revamped in the current financial year. Previous refurbishments have led to a boost in trading.
Retail landlords view the company as a magnet for consumers so they are happy to give sweeteners like free rent for up to 12 months or money towards the fit-out if Hollywood Bowl signs up to new or refurbished centres.
Hollywood Bowl has improved its food offering and spruced up its diners in order to improve customer dwell time.
Various efficiency initiatives are being rolled out to potentially enhance profit in the future. For example, it is introducing a new scoring system where it is much easier for the customer to input their information.
This data is also used for marketing purposes and Hollywood Bowl says more than 80% of people open its emails containing their scores from recent games. This very high engagement rate presents an opportunity to include promotions to get customers visiting its sites more regularly.
Seven sites have been fitted with pins-onstrings to replace the traditional pin setting system which has countless moving parts and has a habit of breaking down. Hollywood Bowl says the traditional system supports an average of 396 games before a fault stops play versus 1,443 games from the pins-on-strings system.
It plans to test a new indoor mini-golf concept which could help to accelerate group earnings significantly if successful.
Hollywood Bowl will pay a 4.23p normal dividend and a 4.33p special dividend in February 2019, both declared at the 2018 full year results on 10 December.
Broker Shore Capital forecasts 6.8p normal dividends for the current financial year, implying a 3.1% prospective yield. While this forecast doesn’t include a special dividend, it is worth noting that Hollywood Bowl has declared ‘specials’ for the past two years in a row.
HIGHLY CASH GENERATIVE BUSINESS WITH PLENTY OF IDEAS TO ENHANCE EARNINGS