Hostmore — Delivering on its plans

Hostmore (LSE: MORE)

Currency in GBP

Last close As at 25/01/2023

GBP0.12

−0.36 (−2.82%)

Market capitalisation

GBP16m

Research: Consumer

Hostmore — Delivering on its plans

Notwithstanding the proposed tightening of restrictions amid concerns about the Omicron variant of COVID-19, Hostmore has accompanied news of continued buoyant trading with assurances of costs mitigation and further COVID-19 leasehold concessions this year and next. Confirmation of like-for-like EBITDA in October and November was up on 2019, and a positive response to Fridays’ Christmas promotions, reinforce our confidence in our current year forecasts. Meanwhile, expected growth opportunities in a favourable property market are being realised with a likely accelerated rollout (five sites in legal negotiations). We reiterate that an EV/EBITDA multiple of 6x FY22e is a sharp discount to that of its peers (we estimate c 10x average) and ignores Fridays’ strong rejuvenation prospects, backed by our forecast of FY22 financials well ahead of pre-pandemic levels.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

Hostmore

Delivering on its plans

Trading update

Travel & leisure

9 December 2021

Price

106p

Market cap

£134m

Net bank debt (£m), adjusted for

COVID-19 accruals, at August 2021

36

Shares in issue

126.1m

Free float

100%

Code

MORE

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

Business description

Hostmore has been newly formed to provide a platform for the development of hospitality brands. Its current operations are Fridays, a UK nationwide chain of American-styled casual dining restaurants (85 sites), and 63rd+1st, a new cocktail-led bar and restaurant brand (three sites).

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Hostmore is a research client of Edison Investment Research Limited

Notwithstanding the proposed tightening of restrictions amid concerns about the Omicron variant of COVID-19, Hostmore has accompanied news of continued buoyant trading with assurances of costs mitigation and further COVID-19 leasehold concessions this year and next. Confirmation of like-for-like EBITDA in October and November was up on 2019, and a positive response to Fridays’ Christmas promotions, reinforce our confidence in our current year forecasts. Meanwhile, expected growth opportunities in a favourable property market are being realised with a likely accelerated rollout (five sites in legal negotiations). We reiterate that an EV/EBITDA multiple of 6x FY22e is a sharp discount to that of its peers (we estimate c 10x average) and ignores Fridays’ strong rejuvenation prospects, backed by our forecast of FY22 financials well ahead of pre-pandemic levels.

Year end

Revenue (£m)

EBITDA
reported (£m)

EBITDA
pre-IFRS 16 (£m)

PBT*
(£m)

EPS*
(p)

EV/reported
EBITDA (x)

12/19

214.8

45.5

25.6

7.4

N/A

N/A

1220

129.1

23.5**

1.7**

(12.2)**

N/A

N/A

12/21e

150.0

35.0**

18.5**

(0.2)**

(0.2)

8.9

12/22e

242.0

50.5

29.5

15.0

10.2

5.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Including UK government COVID-19 grants:

2020 £19.1m and 2021 £14.8m.

While an increase on 2019 in comparable EBITDA for October and November may have been boosted by the continued, if reduced, benefit of VAT rate reduction (down 7.5% on 2019 since 1 October), we may reasonably assume the growing success of Fridays’ wide-ranging brand extension initiatives, as reported in 3% market outperformance in the 20 weeks from resumption of indoor dining on 17 May and newly endorsed by the ‘pleasing’ average spend per head on the launch of new menus. We point also to the contribution of delivery and takeaway as an incremental business stream and the popularity of cocktails, a Fridays staple.

Looking ahead, despite Omicron worries, the net booking rate for Christmas has held steady at a high level thanks to a themed promotion. Operational challenges such as staffing and energy cost inflation are being met respectively by effective yield management and long-term hedges. A favourable property market and marked reduction in competition on pandemic fallout are facilitating further landlord concession agreements in addition to c £1m achieved in October as well as access to prime sites at more attractive prices (projected opening of the fourth 63rd+1st, Fridays’ complementary cocktail-led bar and restaurant brand, in Cambridge in H122 plus a confirmed pipeline of five sites).

General disclaimer and copyright

This report has been commissioned by Hostmore and prepared and issued by Edison, in consideration of a fee payable by Hostmore. Edison Investment Research standard fees are £60,000 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

More on Hostmore

View All

Consumer

Hostmore — Back on track

Consumer

Hostmore — Ready to party

Consumer

Hostmore — Delivering on its plans

Consumer

Hostmore — Full menu!

Latest from the Consumer sector

View All Consumer content

Research: Consumer

Games Workshop Group — H122 helped by licensing income

With profit in line with expectations, Games Workshop Group’s (GAW) H122 trading update is reassuring. The previously flagged forex and freight cost pressures have negatively affected pre-licensing profit. This was partially offset by an exceptional level of licensing income versus GAW’s trading history. Our FY22 forecasts are unchanged ahead of the publication of H122 results. The FY22e P/E of 25.0x is in line with GAW’s recent average multiple. Our DCF-based valuation remains £129 per share.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free