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Last close As at 09/06/2023
GBP0.22
▲ 0.40 (1.85%)
Market capitalisation
GBP28m
Research: Consumer
Hostmore has bucked concerns about the impact of the Omicron variant with its expectation of FY21 pre-IFRS 16 EBITDA ‘well ahead of £18.6m market consensus’. While buoyancy in October and November was the driver, December proved resilient with cancellations owing to COVID-19 concerns more than made up by walk-ins and new reservations. We are therefore raising our FY21 forecast of EBITDA (our key metric) by £2m and revenue by £10m. For the current year the newly confirmed imminent easing of COVID-19 restrictions should spur the benefit of Fridays’ wide-ranging brand initiatives and growth opportunities in a favourable property market. Hostmore’s meagre rating of under 6x FY22e EV/EBITDA belies such positives and is low against an average of c 10x for its peers.
Hostmore |
Ready to party |
Trading update |
Travel & leisure |
26 January 2022 |
Share price performance
Business description
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Hostmore is a research client of Edison Investment Research Limited |
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Hostmore has bucked concerns about the impact of the Omicron variant with its expectation of FY21 pre-IFRS 16 EBITDA ‘well ahead of £18.6m market consensus’. While buoyancy in October and November was the driver, December proved resilient with cancellations owing to COVID-19 concerns more than made up by walk-ins and new reservations. We are therefore raising our FY21 forecast of EBITDA (our key metric) by £2m and revenue by £10m. For the current year the newly confirmed imminent easing of COVID-19 restrictions should spur the benefit of Fridays’ wide-ranging brand initiatives and growth opportunities in a favourable property market. Hostmore’s meagre rating of under 6x FY22e EV/EBITDA belies such positives and is low against an average of c 10x for its peers.
Year end |
Revenue (£m) |
EBITDA |
EBITDA |
PBT* |
EPS |
EV/reported EBITDA (x) |
12/19 |
214.8 |
45.5 |
25.6 |
7.4 |
N/A |
N/A |
12/20 |
129.1 |
23.5** |
1.7** |
(12.2)** |
N/A |
N/A |
12/21e |
160.0 |
37.0** |
20.5** |
1.8 |
1.2 |
8.2 |
12/22e |
242.0 |
50.5 |
29.5 |
15.0 |
10.2 |
5.7 |
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.
Omicron resilience in December
Confirmation of revenue for December down only 8% on 2019 was welcome, given the hit to consumer confidence in a key period from stricter COVID-19 restrictions and government messaging. This was not out of kilter with the restaurants market, as per the Coffer CGA Business Tracker, which saw a 4% reduction after consistent 2021-on-2019 monthly growth since full reopening. Guest cancellations at Hostmore were more than offset by new reservations and walk-ins rather than re-bookings as group reservations tend not to be significant.
Increased FY21 forecasts reflect strong start as PLC
With ‘EBITDA for October and November 2021 ahead of 2019’ per the 8 December trading update and December holding up despite Omicron, if less than originally envisaged, Hostmore is set to deliver pre-IFRS 16 EBITDA ‘well ahead of £18.6m market consensus’. Our raised FY21 forecasts, as detailed on page 2, show a £2m rise in EBITDA at a maintained margin on £10m higher revenue, driven by dine in as guests were encouraged to come in house owing to a better marketing/upselling opportunity. Admin costs have been pared slightly by further COVID-19 landlord concession agreements, while we now expect net bank debt at end 2021 to be £25m (previously £29.5m) thanks to good trading. Macro uncertainties currently suggest maintained forecasts for FY22, but the imminent lifting of Plan B restrictions may give scope to increase.
Valuation: Unduly low
An EV/EBITDA multiple of under 6x in FY22e both fails to recognise Fridays’ rejuvenation prospects in likely improving conditions and stands at an excessive discount to that of its peers, which we estimate to be on c 10x.
Revenue and profit analysis
Exhibit 1: Revenue and EBITDA analysis
Year end 31 December (£m) |
2019 |
H120* |
H220** |
FY20*** |
H121**** |
H221e |
FY21e |
FY22e |
Sites (period end) |
87 |
85 |
85 |
85 |
87 |
88 |
88 |
94 |
Revenue |
||||||||
Existing (80 sites) |
193.2 |
46.0 |
67.0 |
113.0 |
34.7 |
105.9 |
140.5 |
201.5 |
Change |
+2% |
N/A |
N/A |
-42% |
-25% |
+58% |
+24% |
+54% |
Additions (sites) |
14.9 (9) |
5.5 |
8.7 |
14.2 (9) |
4.6 |
13.4 |
18.0(13) |
40.5 (19) |
Disposals |
7.2 |
1.1 |
0.7 |
1.8 |
0.5 |
0.5 |
1.0 |
- |
Other |
(0.4) |
(0.2) |
0.3 |
0.1 |
0.2 |
0.3 |
0.5 |
- |
Dine in |
211.7 |
45.9 |
68.7 |
114.6 |
28.7 |
115.8 |
144.5 |
229.0 |
Change |
+3% |
-46% |
-38% |
+69% |
+26% |
+59% |
||
Dine out |
3.1 |
6.4 |
7.7 |
14.1 |
11.0 |
4.0 |
15.0 |
12.5 |
Change |
+13% |
X4 |
+72% |
-48% |
+6% |
-17% |
||
Other |
- |
Neg. |
0.4 |
0.4 |
0.2 |
0.3 |
0.5 |
0.5 |
Total |
214.8 |
52.4 |
76.7# |
129.1# |
39.9# |
120.1# |
160.0# |
242.0 |
Gross Profit |
168.1 |
40.7 |
62.2 |
102.9 |
32.2 |
95.8 |
128.0 |
190.0 |
Margin |
78% |
78% |
81% |
80% |
81% |
80% |
80% |
79% |
Admin expenses |
(122.8) |
(51.1) |
(48.9) |
(100.0) |
(40.6) |
(65.7) |
(106.3) |
(140.0) |
Share of revenue |
57% |
98% |
64% |
78% |
102% |
55% |
66% |
58% |
Other income: |
||||||||
- Government grants |
- |
11.9 |
7.2 |
19.1 |
14.8 |
- |
14.8 |
- |
- Other |
0.2 |
Neg. |
1.5 |
1.5 |
0.1 |
0.4 |
0.5 |
0.5 |
EBITDA |
||||||||
Reported |
45.5 |
1.4 |
22.1 |
23.5 |
6.5 |
30.5 |
37.0 |
50.5 |
Lease expenses |
(20.2) |
(11.0) |
(9.5) |
(20.5) |
(9.5) |
(6.5) |
(16.0) |
(21.0) |
Other |
0.2 |
Neg. |
(1.5) |
(1.5) |
(0.3) |
(0.2) |
(0.5) |
Neg. |
Pre-IFRS 16 |
25.6 |
(9.5) |
11.2 |
1.7 |
(3.3) |
23.8 |
20.5 |
29.5 |
Margin, before govt grants |
11.9% |
- |
5.2% |
- |
- |
19.5% |
3.3% |
12.2% |
Source: Company data, Edison Investment Research. Note: *National lockdown from 20 March to 28 June; **National lockdown from 5 November to 2 December; ***245 days’ trading; ****National lockdown from 1 January until 26 April in Scotland and 17 May in England; #Boosted by VAT reduction from 20 July 2020 and menu price increases.
Exhibit 1 shows our FY21 forecasts, revised following Hostmore’s 17 January trading update. The principal changes are as follows:
■
6% increase in revenue and pre-IFRS 16 EBITDA.
■
We now expect PBT to be positive at £1.8m (previously -£0.2m).
■
Year-end net bank debt (see Exhibit 2) £25m (previously £29.5m) for FY21e and £21.5m (previously £26m) for FY22e.
Exhibit 2: Financial summary
£'000s |
2019 |
2020 |
2021e |
2022e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
214,800 |
129,100 |
160,000 |
242,000 |
Cost of Sales |
(46,700) |
(26,200) |
(32,000) |
(52,000) |
||
Gross Profit |
168,100 |
102,900 |
128,000 |
190,000 |
||
EBITDA pre-IFRS 16 |
|
|
25,600 |
1,700 |
20,500 |
29,500 |
EBITDA |
|
|
45,500 |
23,500 |
37,000 |
50,500 |
Normalised operating profit |
|
|
20,600 |
200 |
14,800 |
28,000 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
||
Exceptionals |
1,600 |
(8,000) |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
||
Reported operating profit |
22,200 |
(7,800) |
14,800 |
28,000 |
||
Net Interest |
(13,200) |
(12,400) |
(13,000) |
(13,000) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
7,400 |
(12,200) |
1,800 |
15,000 |
Profit Before Tax (reported) |
|
|
9,000 |
(20,200) |
1,800 |
15,000 |
Reported tax |
(2,000) |
2,900 |
1,200 |
(2,000) |
||
Profit After Tax (norm) |
5,400 |
(9,300) |
1,500 |
12,800 |
||
Profit After Tax (reported) |
7,000 |
(17,300) |
3,000 |
13,000 |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
5,400 |
(9,300) |
1,500 |
12,800 |
||
Net income (reported) |
7,000 |
(17,300) |
3,000 |
13,000 |
||
Average number of shares outstanding (m) |
N/A |
N/A |
126 |
126 |
||
EPS - normalised (p) |
|
|
N/A |
N/A |
1.19 |
10.15 |
EPS - diluted normalised (p) |
|
|
N/A |
N/A |
1.19 |
10.15 |
EPS - basic reported (p) |
|
|
N/A |
N/A |
2.38 |
10.31 |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
(39.9) |
23.9 |
51.3 |
||
Gross Margin (%) |
78.3 |
79.7 |
80.0 |
78.5 |
||
EBITDA Margin (%) |
21.2 |
18.2 |
23.1 |
20.9 |
||
Normalised Operating Margin |
9.6 |
0.2 |
9.3 |
11.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
341,400 |
321,300 |
310,000 |
304,000 |
Intangible Assets |
146,000 |
146,000 |
146,000 |
146,000 |
||
Tangible Assets |
192,300 |
170,100 |
159,000 |
153,000 |
||
Investments & other |
3,100 |
5,200 |
5,000 |
5,000 |
||
Current Assets |
|
|
36,200 |
46,100 |
51,000 |
54,000 |
Stocks |
1,300 |
700 |
1,500 |
1,500 |
||
Debtors |
7,600 |
6,500 |
8,000 |
8,500 |
||
Cash & cash equivalents |
27,100 |
37,200 |
39,500 |
42,000 |
||
Other |
200 |
1,700 |
2,000 |
2,000 |
||
Current Liabilities |
|
|
(35,300) |
(51,700) |
(45,700) |
(37,400) |
Creditors |
(6,400) |
(13,400) |
(8,500) |
(5,000) |
||
Tax and social security |
(4,800) |
(6,000) |
(6,000) |
(6,000) |
||
Lease liabilities |
(12,700) |
(17,700) |
(18,000) |
(14,500) |
||
Short term borrowings |
(1,100) |
(1,400) |
(1,500) |
(1,500) |
||
Other |
(10,300) |
(13,200) |
(11,700) |
(10,400) |
||
Long Term Liabilities |
|
|
(209,700) |
(200,400) |
(197,000) |
(189,000) |
Lease liabilities |
(144,800) |
(133,800) |
(131,000) |
(124,000) |
||
Long term borrowings |
(64,900) |
(63,900) |
(63,000) |
(62,000) |
||
Other long-term liabilities |
0 |
(2,700) |
(3,000) |
(3,000) |
||
Net Assets |
|
|
132,600 |
115,300 |
118,300 |
131,600 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
132,600 |
115,300 |
118,300 |
131,600 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
45,500 |
23,500 |
37,000 |
50,500 |
||
Working capital |
2,500 |
11,500 |
(9,500) |
(4,000) |
||
Exceptional & other |
3,100 |
(700) |
0 |
0 |
||
Tax |
(1,600) |
(1,000) |
0 |
(1,000) |
||
Operating cash flow |
|
|
49,500 |
33,300 |
27,500 |
45,500 |
Capex |
(11,300) |
(3,700) |
(5,000) |
(11,000) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Net interest |
(26,200) |
(17,700) |
(18,000) |
(26,000) |
||
Equity financing |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(1,400) |
(1,100) |
(1,400) |
(5,000) |
||
Net Cash Flow |
10,600 |
10,800 |
3,100 |
3,500 |
||
Opening net debt/(cash) |
|
|
49,500 |
38,900 |
28,100 |
25,000 |
FX |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
38,900 |
28,100 |
25,000 |
21,500 |
Lease liabilities |
157,500 |
151,500 |
149,000 |
138,500 |
||
Closing net debt/(cash) including IFRS 16 lease liabilities |
196,400 |
179,600 |
174,000 |
160,000 |
||
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
Technicolor is on track to meet FY21 and FY22 management guidance (maintained at the Q3 results in November) on EBITDA and EBITA, despite supply constraints resulting from the pandemic, and our forecasts for these were unchanged. Demand in both Technicolor Creative Studios (TCS) and Connected Home remains robust, with financial performance constrained in the former by industry talent shortages and in the latter by continuing industry componentry supply issues. With planned cost savings tracking to plan, the shift is continuing back towards the equity, which now represents 35% of the enterprise value. We would expect that a return to focus on the operations should lead to a higher valuation.
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