Research: Consumer
Loungers continues to show that UK hospitality in the guise of an innovative, all-day value offer can deliver significant and sustained profit growth despite sector headwinds. H124 adjusted EBITDA (IAS 17) was 28% higher due to a like-for-like sales increase (+7.7%) and scale benefits from accelerated expansion (over 15% in the last year). Such momentum may only be reinforced by a burgeoning pipeline in a property market that management expects to remain favourable for the foreseeable future and thus conducive to a potential long-term trebling of the estate, which could be funded internally on the current model. A consensus FY24e EV/EBITDA (based on IAS 17 accounting standard) of 6.5x compares with a c 9x historical exit multiple for Restaurant Group, Loungers’ closest listed peer.
Loungers |
Happy eaters
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Travel & leisure |
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7 December 2023 |
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Loungers continues to show that UK hospitality in the guise of an innovative, all-day value offer can deliver significant and sustained profit growth despite sector headwinds. H124 adjusted EBITDA (IAS 17) was 28% higher due to a like-for-like sales increase (+7.7%) and scale benefits from accelerated expansion (over 15% in the last year). Such momentum may only be reinforced by a burgeoning pipeline in a property market that management expects to remain favourable for the foreseeable future and thus conducive to a potential long-term trebling of the estate, which could be funded internally on the current model. A consensus FY24e EV/EBITDA (based on IAS 17 accounting standard) of 6.5x compares with a c 9x historical exit multiple for Restaurant Group, Loungers’ closest listed peer.
H124: Ticking all the boxes
Refreshingly clean of COVID-19 adjustments, the results for the 24 weeks to 1 October made clear the strength of appeal of the Loungers offer. Like-for-like sales up 7.7% exceeded pre-pandemic levels by 25%, which management believes is unmatched in the sector. Progress was across the board in terms of brands and geography, with impressive contributions from the oldest c 25% of sites pre-FY16 confirming their upkeep and relevance. Margin expansion (11.6% vs 11.0% for IAS 17 EBITDA) was driven by better purchasing (thanks to scale), pricing (still cheaper than the competition) and the leveraging of fixed property costs (rent to revenue down to an industry-leading 4.4%). Year-on-year net bank debt was up less than £5m at £14m despite £43m in capex (34 openings).
Way to go
With like-for-like growth in sales maintained and six openings in the first eight weeks of H224, more of the same may be expected in the traditionally stronger second half, allied with management’s confidence that it has ‘levers to pull’ to absorb costs, notably regarding the rise in the National Living Wage. It is similarly positive about a pathway to at least 600 Lounges and 65 Cosy Clubs. The variety and flexibility of the all-day offer as not just a restaurant business bring myriad opportunities in an amenable property market, while the company is now equipped to deliver c 35 openings per annum.
Valuation: Unflattering
On raised consensus forecasts after the H124 results and addition of a 53rd week, Loungers’ FY24e EV/EBITDA (IFRS 16) is 7.7x (7.1x if £4m pre-opening costs are added back), which is similar to that of its larger competitor J D Wetherspoon.
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Consensus estimates (IFRS 16)
Source: Refinitiv. Note: *Excluding exceptionals but 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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Research: Consumer
Deliveroo’s (ROO’s) November capital markets day (CMD) saw its leadership team present initiatives aimed at progressing the customer value proposition (CVP) to drive revenue growth and improve profitability. ROO’s strategy is to unlock growth through greater market penetration and by growing customer loyalty via a hyperlocal approach, hosting both national and local brands on its platform. The shares are down 65% since the IPO in 2021, with trading affected by the weaker consumer environment amongst other factors. ROO trades at a discount to its peers, although delivery on financial targets and the tailwind of an improving consumer environment could enable the discount to narrow.