Listed in April 2017 with a reorganized corporate structure, and led by a high-calibre operating team, Ten Entertainment Group (TEG) has developed a highly cash-generative business model that signals further growth prospects. By combining its operating formula with an integrated technology platform, TEG has set itself apart from competitors. With effective inward capital investment and its ‘Tenpinisation’ model, growth looks set to continue, and forecasts indicate a substantial increase in profit in FY17 and FY18.
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Ten Entertainment Group |
Ten out of ten
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Consumer |
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2 August 2017 |
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Listed in April 2017 with a reorganized corporate structure, and led by a high-calibre operating team, Ten Entertainment Group (TEG) has developed a highly cash-generative business model that signals further growth prospects. By combining its operating formula with an integrated technology platform, TEG has set itself apart from competitors. With effective inward capital investment and its ‘Tenpinisation’ model, growth looks set to continue, and forecasts indicate a substantial increase in profit in FY17 and FY18.
Operating formula and enhanced technology
Ten Entertainment Group, currently the second largest ten-pin bowling operator in the UK, has embraced an operating formula that extends the bowling experience by offering a broader entertainment, family-focused customer proposition. We believe that this is a key contributor to the recent market outperformance and increased market share. The operational model is complemented by the fully integrated technology platform, which facilitates site integration and contributes consistency of service, yield management and monitoring of KPIs. This platform acts as a further differentiator, driving asset utilisation, participation and spend per head.
‘Tenpinisation’ success
Revenue increased at an 18% CAGR from FY14 to FY16, with the growth strategy driven by site acquisitions combined with integration. A key aspect of this integration is the ‘Tenpinisation’ model, which provides tools for rapid redevelopment of acquired sites, bringing the look and feel of the new operations, including incentivised customer service and the technology, up to the standards of the existing estate. This formula underpins post acquisition performance of 27% average ROI on site acquisitions, with plans to continue at 2-4 pa. Inward capital investment through site refurbishment delivers a ROI of 49%, running at 3-4 pa.
Valuation: Entertaining profitability
Consensus forecasts suggest that the highly cash-generative operating model, combined with a clearly defined growth strategy, will enable TEG to deliver growing returns for shareholders. PBT is set to increase by 144% from FY16 to FY17, and dividend per share, supported by high cash conversion, is projected to be 7.5p and 11.5p in FY17 and FY18 respectively. Net debt of £2.7m at end FY16 (excluding finance leases of £5.1m) is forecast to move to net cash by FY18. TEG shares trade at a current year P/E discount of 36% to Hollywood Bowl, the company’s only direct quoted peer.
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Consensus estimates
Source: Bloomberg consensus, TEG accounts. Note: *53 weeks to 1 January 2017. |
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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Disclaimer
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Disclaimer
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Research: Industrials
Market conditions were pretty much as expected in H117 though the enlarged Schlegel International performed particularly well in the period. Tyman continues to make progress on a number of fronts; broadly positive market outlooks supplemented by an agenda of operational improvements provide an attractive combination, in our view. We have raised earnings forecasts again and expect positive momentum to be sustained.