Xp Factory Share Price (XPF)

Don’t think HedgeHogarth sees it that way.

XP Factory (XPF)

Their latest trading update (18th Jan) failed to address what I really care about - are they on the path to break-even profitability, and proving that they have a business model that can scale profitably?

Lots of information on revenues, Like-for-like revenues, growth rates. Some details on site-level EBITDA, and then really nothing at all below this line in the P&L. Why? I suspect it is a conscious choice of omission because they are horribly in the red, once you go below the site-level EBITDA line.

This is not a surprise. Their Half Year results, where they have to state the entire P&L, showed an operating loss of -£1.6m. I was hoping that, in the seasonally stronger H2, that this would swing wildly into the black and therefore on a FY basis they finally prove they can operate profitably (even on an adjusted level). Unfortunately, they confirmed they are "trading to market expectations”, which if taking the broker forecasts, is still a loss for the FY Mar24.

Quite why they are unable to make a profit, with a chain of 24 Escape Hunt sites and 19 Boom Battle Bar sites, is a mystery. I can forgive them if they had a small chain of less than 10 sites, but there are enough sites now to spread out any central costs, D&A, and interest costs.

The key killer for me, when looking at the P&L, is the huge D&A costs. £3.4m in H1 alone. I’d say the run-rate is probably closer to £7-7.5m/year now, given additional openings and capex investments. That is quite a lot, on a turnover of £44.5m a year. Given this is never going to be a high margin business; they are aiming for only 20-25% site-level EBITDA margins on the Boom Battle bar business, which definitely does not support the level of D&A that is being charged.

So where does this leave me? Still very sceptical if their current business model works. Fundamentally, Boom Battle Bar does not seem a sustainable business model to me yet. For the next 1-2 years, they should be OK in terms of positive cashflow, which will mirror the EBITDA, as they won’t need to invest maintenance and refresh capex for their still-new estate. But I can foresee, from 2025-2026 onwards, that increasing capex needs to keep their estate looking good, would then pressure their cashflows. If they are unable to get their site-level EBITDA margin up to a much higher level.

Lots of investors have gone into this, tempted by the siren song of high growth rates, and a sexy growth sector (experiences). While I think they have created an entertainment format that is a hit with consumers, it remains to be seen whether it can be profitable for investors.

I continue to wait and see on the sidelines.

This time next year!

Hollywood Bowl recently announced decent results and were bullish about prospects. This clearly bodes well for XPF being in the same leisure sector.

Things seem to be progressing well and the newer venues will now start increasing revenues and profits as they become more established. It is only the SP that is depressing! One day Rodders.

Oh well,, got excited there for about 10 seconds.... back to 14p,

God this share is depressing.