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Currency in GBP
Last close As at 26/05/2023
GBP0.23
▲ 0.20 (0.87%)
Market capitalisation
GBP29m
Research: Consumer
Hostmore has reassured with confirmation that, despite sector operating challenges, its like-for-like (l-f-l) revenues since 23 May are as expected in its May update, which assumed up to 8% lower l-f-l dine-in volumes on 2019 for the rest of 2022, mitigated by pricing. Organic expansion is also on track with the new 63rd+1st in Edinburgh part of five openings planned this year, while newly enhanced banking facilities reinforce a strong balance sheet. Despite the downward revision to our current year forecasts given May’s cautious update, for FY23 Friday’s rejuvenation prospects in likely improving conditions and clear growth opportunities drive our newly introduced expectation of a sharp rebound. Hostmore’s rating of 4x FY23e EV/EBITDA is low against an average of c 7x for peers.
Hostmore |
Back on track |
Trading update |
Travel & leisure |
14 July 2022 |
Share price performance
Business description
Next events
Analysts
Hostmore is a research client of Edison Investment Research Limited |
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Hostmore has reassured with confirmation that, despite sector operating challenges, its like-for-like (l-f-l) revenues since 23 May are as expected in its May update, which assumed up to 8% lower l-f-l dine-in volumes on 2019 for the rest of 2022, mitigated by pricing. Organic expansion is also on track with the new 63rd+1st in Edinburgh part of five openings planned this year, while newly enhanced banking facilities reinforce a strong balance sheet. Despite the downward revision to our current year forecasts given May’s cautious update, for FY23 Friday’s rejuvenation prospects in likely improving conditions and clear growth opportunities drive our newly introduced expectation of a sharp rebound. Hostmore’s rating of 4x FY23e EV/EBITDA is low against an average of c 7x for peers.
Year end |
Revenue |
EBITDA reported (£m) |
EBITDA pre-IFRS 16 (£m) |
PBT* |
EPS* |
EV/reported |
12/19 |
214.8 |
46.7 |
25.6 |
8.6 |
N/A |
N/A |
12/20 |
129.1 |
23.5 |
1.5 |
(12.2)** |
N/A |
N/A |
12/21 |
159.0 |
43.0 |
21.5 |
7.1** |
5.1 |
4.8 |
12/22e |
218.0 |
39.5 |
18.0 |
5.5 |
3.7 |
5.4 |
12/23e |
251.0 |
47.5 |
25.0 |
13.0 |
8.5 |
4.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Including COVID-19 related income (UK government grants and landlord rent concessions): 2020 £22.0m and 2021 £19.1m.
In good order
Ahead of maiden interim results in September, Hostmore’s confirmation of maintained FY22 expectations is welcome in view of poor consumer sentiment and specifically after management’s ‘more prudent view’ in its May update, even if this time there is no quantification of l-f-l revenues on 2019. We are also encouraged that challenging conditions are not inhibiting expansion, with five openings this year and eight next, further enabled by a one-year extension of its term loan to October 2024 and a £5m rise to £30m in its revolving credit facility.
Positive FY23 forecasts offset short-term setback
May’s report of 6% lower l-f-l revenues on 2019 in the first 20 weeks of FY22 coupled with guidance of l-f-l dine-in volumes down up to 8% on 2019 for the rest of the year, albeit substantially offset in terms of revenue by H2 pricing, is at odds with our published expectation of 4% l-f-l revenue growth for FY22. As detailed on page 2, our revision now to l-f-l revenues down 2% and a more cautious view on margin than May’s guidance (on pre-IFRS 16 EBITDA 8% vs ‘low double digits’) give £39.5m EBITDA (previously £50.5m). For FY23 without COVID-19’s depressant in Q122 and with a full year’s pricing benefit and hopefully recovering consumer sentiment and abating inflation, 10% higher l-f-l revenue from a lower base looks reasonable, as does an improved pre-IFRS 16 EBITDA margin (10%).
Valuation: Cautious
While a discount to Hostmore’s peers is understandable owing to the profit setback, an EV/EBITDA multiple of 4x in FY23e is undemanding. We note recent directors’ purchases of c 0.5m shares at 42–43p, a marked premium to the current price.
Revenue and profit analysis
Exhibit 1: Revenue and EBITDA analysis
Year end 31 December (£m) |
2019 |
2020* |
2021** |
2022e |
2023e |
Sites (period end) |
87 |
85 |
88 |
92 |
100 |
Revenue |
|||||
Existing (84 sites) |
201.7 |
120.3 |
146.6 |
198.0 |
218.0 |
Change |
-40% |
+22% |
-2% on 2019 |
+10% |
|
Additions (sites) |
6.2 (5) |
7.3 (5) |
11.7 (9) |
19.0 (15) |
33.0 (23) |
Disposals |
7.3 (2) |
1.4 (2) |
0.4 (2) |
1.0 (1) |
- |
Other |
(0.4) |
Neg. |
0.4 |
- |
- |
Dine in |
211.7 |
114.6 |
139.5 |
207.0 |
241.0 |
Change |
+3% |
-46% |
+22% |
-2% on 2019 |
+16% |
Dine out |
3.1 |
14.1 |
19.1 |
11.0 |
10.0 |
Change |
+13% |
x4 |
+36% |
-42% |
-9% |
Other |
- |
0.4 |
0.4 |
- |
- |
Total |
214.8 |
129.1*** |
159.0*** |
218.0*** |
251.0 |
Gross profit |
168.1 |
102.9 |
127.7 |
168.0 |
198.0 |
Margin |
78% |
80% |
80% |
77% |
79% |
Admin expenses |
(121.6) |
(100.0) |
(103.8) |
(128.5) |
(150.5) |
Share of revenue |
57% |
78% |
65% |
59% |
60% |
Other income: |
|||||
COVID-19 government grants |
- |
20.5 |
14.9 |
- |
- |
COVID-19 rent concessions |
- |
1.5 |
4.2 |
- |
- |
Other |
0.2 |
0.2 |
0.2 |
- |
- |
EBITDA – adjusted |
|||||
Reported |
46.7 |
23.5 |
43.0 |
39.5 |
47.5 |
Rent etc |
(21.1) |
(22.0) |
(21.4) |
(21.5) |
(22.5) |
Pre-IFRS 16 |
25.6 |
1.5 |
21.5 |
18.0 |
25.0 |
Margin, before COVID-19 related income |
11.9% |
- |
2.4% |
8.3% |
10.0% |
Source: Hostmore data, Edison Investment Research. Note: *245 days’ trading (national lockdown from 20 March to 28 June and from 5 November to 2 December); **National lockdown from 1 January until 26 April in Scotland and 17 May in England; ***Boosted by VAT reduction from 20 July 2020 until 31 March 2022.
Exhibit 1 shows our FY22 forecasts, revised in the wake of Hostmore’s 26 May trading update. The principal changes are as follows:
■
9% reduction in revenue. This is driven largely by an assumption of 2% lower l-f-l revenues on 2019 (previously 4% higher) owing to May’s update regarding l-f-l revenues down 6% in the 20 weeks to 22 May and guidance of up to 8% lower dine-in volumes for the rest of the period, to be offset significantly in terms of revenue by menu pricing increases (c 5% already with a likely further smaller rise in order to keep up with input cost inflation). We note that Hostmore is reluctant to discount. With revenues weighted towards H2, we assume that c 1% lower l-f-l revenues subsequent to the aforementioned 6% decline may translate to 2% lower for the full year. Also, the contribution from additions since 2019 looks to be lower than we expected because apart from this weaker trading there is increasing incidence of smaller units, that is 63rd+1st and QSR Fridays and Go whose target annual revenues of £1.5m and £1.0m respectively compare with £2.5m for Fridays. This has been compounded by later openings than envisaged.
■
39% decrease in pre-IFRS 16 EBITDA (22% lower EBITDA). Apart from the impact from lower revenues, a slightly more cautious view on gross profit margin (2% lower) and admin costs as a share of revenues (1% higher) seems appropriate owing to cost pressures, even if mitigated by efficiencies such as food engineering. In terms of pre-IFRS 16 EBITDA, our assumed margin of 8% is below that of May’s guidance of ‘low double digits,’ which seems optimistic (12% in more benign conditions in 2019).
Recent announcements
■
Directors’ share purchases. Between 30 May and 1 June three directors acquired in total c 0.5m shares at 42–43p.
■
Employee Benefit Trust indicated on 30 June its intention to purchase shares at its discretion up to a value of £0.5m.
Exhibit 2: Financial summary
£'000s |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
129,100 |
159,000 |
218,000 |
251,000 |
Cost of Sales |
(26,200) |
(31,300) |
(50,000) |
(53,000) |
||
Gross Profit |
102,900 |
127,700 |
168,000 |
198,000 |
||
EBITDA pre-IFRS 16 |
|
|
1,500 |
21,500 |
18,000 |
25,000 |
EBITDA |
|
|
23,500 |
43,000 |
39,500 |
47,500 |
Normalised operating profit |
|
|
200 |
20,700 |
17,300 |
24,700 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
||
Impairments |
(8,000) |
(500) |
(1,000) |
0 |
||
Share-based payments |
0 |
(100) |
(600) |
(1,000) |
||
Reported operating profit |
(7,800) |
20,100 |
15,700 |
23,700 |
||
Net Interest |
(12,400) |
(13,600) |
(11,800) |
(11,700) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(8,100) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(12,200) |
7,100 |
5,500 |
13,000 |
Profit Before Tax (reported) |
|
|
(20,200) |
(1,600) |
3,900 |
12,000 |
Reported tax |
2,900 |
1,000 |
(1,800) |
(2,500) |
||
Profit After Tax (norm) |
(9,300) |
6,000 |
4,700 |
10,700 |
||
Profit After Tax (reported) |
(17,300) |
(600) |
2,100 |
9,500 |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(9,300) |
6,000 |
4,700 |
10,700 |
||
Net income (reported) |
(17,300) |
(600) |
2,100 |
9,500 |
||
Average number of shares outstanding (m) |
N/A |
119 |
126 |
126 |
||
EPS - normalised (p) |
|
|
N/A |
5.06 |
3.73 |
8.49 |
EPS - diluted normalised (p) |
|
|
N/A |
5.06 |
3.73 |
8.49 |
EPS - basic reported (p) |
|
|
N/A |
(0.51) |
1.67 |
7.53 |
Dividend (p) |
0.00 |
0.00 |
0.00 |
1.20 |
||
Revenue growth (%) |
(39.9) |
23.2 |
37.1 |
15.1 |
||
Gross Margin (%) |
79.7 |
80.3 |
77.1 |
78.9 |
||
EBITDA Margin (%) |
18.2 |
27.0 |
18.1 |
18.9 |
||
Normalised Operating Margin |
0.2 |
13.0 |
7.9 |
9.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
321,300 |
311,500 |
309,300 |
311,700 |
Intangible Assets |
146,000 |
146,000 |
146,000 |
146,000 |
||
Tangible Assets |
170,100 |
159,200 |
158,000 |
160,000 |
||
Investments & other |
5,200 |
6,300 |
5,300 |
5,700 |
||
Current Assets |
|
|
46,100 |
39,300 |
34,200 |
46,300 |
Stocks |
700 |
1,500 |
2,000 |
2,200 |
||
Debtors |
6,500 |
5,600 |
7,000 |
7,500 |
||
Cash & cash equivalents |
37,200 |
32,100 |
25,000 |
36,200 |
||
Other |
1,700 |
100 |
200 |
400 |
||
Current Liabilities |
|
|
(193,500) |
(57,500) |
(51,500) |
(72,000) |
Creditors |
(158,100) |
(23,500) |
(18,000) |
(21,000) |
||
Tax and social security |
(6,000) |
(3,300) |
(3,000) |
(3,300) |
||
Lease liabilities |
(26,400) |
(19,000) |
(15,000) |
(15,200) |
||
Short term borrowings |
(1,400) |
(10,400) |
(14,500) |
(32,000) |
||
Other |
(1,600) |
(1,300) |
(1,000) |
(500) |
||
Long Term Liabilities |
|
|
(200,500) |
(168,300) |
(165,000) |
(151,000) |
Lease liabilities |
(133,800) |
(132,000) |
(132,000) |
(135,000) |
||
Long term borrowings |
(63,900) |
(33,900) |
(32,000) |
(15,000) |
||
Other long-term liabilities |
(2,800) |
(2,400) |
(1,000) |
(1,000) |
||
Net Assets |
|
|
(26,600) |
125,000 |
127,000 |
135,000 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
(26,600) |
125,000 |
127,000 |
135,000 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
23,500 |
43,000 |
39,500 |
47,500 |
||
Working capital |
2,700 |
1,000 |
(12,000) |
2,500 |
||
Exceptional & other |
(400) |
0 |
0 |
0 |
||
Tax |
(1,000) |
1,300 |
(1,300) |
(1,900) |
||
Operating cash flow |
|
|
24,800 |
45,300 |
26,200 |
48,100 |
Capex |
(3,600) |
(4,100) |
(11,500) |
(13,500) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Net interest |
(9,000) |
(24,800) |
(24,000) |
(23,400) |
||
Equity financing |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
(500) |
||
Other |
(1,100) |
0 |
0 |
0 |
||
Net Cash Flow |
11,100 |
16,400 |
(9,300) |
10,700 |
||
Opening net debt/(cash) |
|
|
39,700 |
28,600 |
12,200 |
21,500 |
FX |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
28,600 |
12,200 |
21,500 |
10,800 |
Lease liabilities |
160,200 |
151,000 |
147,000 |
150,200 |
||
Closing net debt/(cash) including IFRS 16 lease liabilities |
188,800 |
163,200 |
168,500 |
161,000 |
||
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
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