Stockopedia comments Paul Scott - BOWL18 Dec 2023 09:34
PER is 13.2x based on Friday’s closing price of 283p - hardly demanding, still good value I’d say, even after a strong recent run upwards in share price.
Total divis (incl. a special) of 14.54p, that’s a 5.1% yield (incl special)
Share buyback of £10m announced.
Adjustments to profit boost it by £2.7m, but do look reasonable to me - relating to the Canada acquisition costs & adj to consideration, so I think it’s fine to strip those costs out to show the underlying trading.
Note that interest earned on cash is £1.4m vs negligible last year, a nice boost there.
Finance expense of £10.4m nearly all relates to leases under the rubbish IFRS 16 rules. I’m pleased to see that BOWL says it will keep reporting pre-IFRS 16 EBITDA, as that’s what investors (and banks) want.
Outlook - encouraging start to the new year, it says, but no detail provided.
Balance sheet - actually isn’t as strong as I was expecting, with a relatively modest £59m of NTAV, after I write off £89m of goodwill.
This is absolutely fine though, because BOWL hardly has any inventories or receivables, which means almost all the NTAV is net cash of £52.5m.
Property is nearly all leased, with large lease entries on the balance sheet, showing a deficit of £43m - which suggests it might have some under-performing sites? That is also possibly why there were some write-offs against fixed assets both this year and last? Something to ask management if you speak to them, or on a webinar, if they’re doing one?
Cashflow statement - is smashing, this is a reliable cash generative business. It generates a lot of cash, which not only funds hefty capex (c.£22m pa) plus acquisitions, and generous divis, all from internal cashflow - no borrowings required. It has a £25m unused bank facility.
Paul’s opinion - a really impressive business, no doubt about that. Its listed competitor TEG was recently bought out by a US investor, for around the same earnings multiple as BOWL currently sits on. So I wonder if it might also become a bid target?
It’s difficult to see much, if any downside risk with BOWL.
All I can think of is that gross margin is very high (since the bowling alley revenue has no direct cost of sales), which means profit is highly geared to a downturn in demand. Although given that BOWL seems to have ridden out the cost of living crisis with aplomb, there doesn’t seem any sign of that happening. I like that BOWL says it’s keeping prices competitive, with some food items not having increased since 2019. We could even see geared upside to profit from a consumer recovery in 2024, now that wages are rising faster than inflation, and the 2% NIC cut kicks in from Jan 2024.
All in all, this looks a very good business to me, at a reasonable price.
It's really surprising that the share price has almost gone nowhere in 5 years - given that the business and profits have roughly doubled over this period below.
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