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Loungers 3 August 2021 QuickView
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Loungers

On a roll

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3 August 2021

Price

277p

Market cap

£284m

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Share details

Code

LGRS

Listing

AIM

Shares in issue

102.7m

Business description

Founded in 2002, Loungers operates 176 all-day neighbourhood café/bars across England and Wales as Lounges and Cosy Clubs. Notwithstanding brand similarities, Cosy Clubs (30) tend to be larger in terms of interiors and location and more formal/ occasion led. The company joined AIM in April 2019.

Bull

Proven, successful offer with a well-invested estate and scalable brands suited to post-pandemic conditions.

Burgeoning, high-quality pipeline (already filling FY23) with openings returning to pre-COVID-19 levels and on favourable terms on pandemic fallout.

Strong finances (current £39m total liquidity and near-halving of headline net debt since April reopening).

Bear

Macro uncertainty, particularly regarding the impact of COVID-19.

Potentially lingering staff shortages owing to tight labour market, now exacerbated by COVID-19.

Execution risk in terms of planned expansion, although positive record of delivery.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

With Loungers trading ‘fantastically well’ and its organic growth strategy ‘never looking more relevant’, management is pulling no punches. Since full reopening on 17 May, its first nine weeks’ like-for-like sales growth of 24% on the same period of 2019 shows material market outperformance (restaurants +8% like-for-like in June, according to Coffer CGA Business Tracker) and sustains the buoyancy of its initial month (+27%). Yet more striking is Loungers’ resumption of its historical run rate of 25 openings a year (seven in the latest quarter) with clear scope to accelerate (already filling FY23 pipeline) and at increasingly attractive sites, given the boost from pandemic fallout and strong finances (c £30m current liquidity). Staffing challenges should be mitigated by ensuring that Loungers remains a hospitality employer of choice.

The good gets better

Notwithstanding clear growth opportunities after COVID-19 for a well-funded business, Loungers’ rapid roll-out and improving property options are testimony to active planning during lockdown and demonstrable buoyancy when permitted to trade. In particular, newly available prime sites in key locations, including coastal and Greater London (not city centre), are now complemented by growing diversity of location at the right price, following for example the successful opening just before the pandemic at Rushden Lakes, a destination shopping centre, thereby bucking Lounge’s neighbourhood suburban high street focus. Annual roll-out of 25 sites (20 Lounges, five Cosy Clubs) may well now be exceeded, accelerating target plans of 500 outlets (400 Lounges, 100 Cosy Clubs). Other recent enhancements include the web-based, at-seat ordering app (‘here to stay’), outside space (extended by c 1,000 covers or six Lounges) and menus (notably at Cosy Club).

H221: Predictably subdued

With the 28 weeks to April 2021 riven by restrictions (loss of 78% of trading days), revenue and EBITDA were down 71% and 95% respectively year-on-year. Government grant support of £3.5m was more than matched by COVID-19 labour costs, eg furlough contributions, and opening and closing sites. Non-property net debt more than doubled in the period to £34m, but has since halved on reopening.

Valuation: Appetising

Appreciation of Loungers’ growth prospects should override concern about short-term challenges. With FY23 set to be driven by expansion payoff and the current year benefiting from COVID-19 support, prospective multiples are undemanding.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

04/20

166.5

26.5

2.0

2.4

0.0

16.0

04/21

78.3

13.5

(13.4)

(9.8)

0.0

31.8

04/22e

216.5

44.5

15.2

11.0

0.0

8.3

04/23e

245.1

43.4

11.9

7.7

0.0

8.6

Source: Refinitiv. Note: *After pre-opening costs.

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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