Weekly Thoughts
Whilst writing a blog, trading the financial markets, and managing my ISA and property portfolio, I am reluctantly trying also to hold down a full-time job. All this on top of my 40th birthday, I, unfortunately, missed my deadline for completing all my work last week. Even though I do not have that many followers that read my blogs (if you do, please give me a comment below), I still want to stay disciplined and meet the deadlines I have set. I write these blogs to develop myself, my learning and my writing. Each one is easier to write and makes more sense than the last one. As you can hear, I do not come from an academic background, but practice makes perfect.
At this time of the year, it is usually quiet with very little company news, but still, some things caught my eye and enabled me to add more companies to the watch list.
There has been much talk on internet forums about whether we have started a new bull market. Even though the S&P 500 in the US appears to be shooting to the upside, this is due to the latest craze of Artificial Intelligence investing. Stripping out the usual suspects in the top ten of the S&P, the rest of the market is flat for the year. It’s too early to be dancing with joy. Be patient and let the market show you where it’s going, Bull or Bear, Cheap or Expensive, seek out those strong companies that can weather any situation on the horizon.
Current Share Price: 266p
Market Cap: £454.18m
I like to invest in companies I can see and use. As a family, we are frequent customers of Hollywood Bowl. I don’t understand how British investors can invest in companies such as Dave & Busters in the US when they have never taken a step inside an establishment and never tasted the food or experienced the service on offer.
Hollywood Bowl operates numerous bowling and mini golf centres throughout the United Kingdom, in major cities and towns nationwide and in Canada. Each centre has a design to provide a fun and vibrant atmosphere for individuals, families, and groups of friends to enjoy the sport of bowling.
The company focuses on delivering a modern and immersive entertainment experience. The bowling centres have state-of-the-art facilities, including well-maintained bowling lanes, automatic scoring systems, and various different-sized balls for players of all ages and skill levels.
In addition to bowling, Hollywood Bowl offers various other attractions and activities to enhance the overall experience. These can include arcade games, pool tables, and interactive amusements. Some locations also provide dining options, such as a restaurant or snack bar, allowing visitors to enjoy food and drinks while they bowl.
Hollywood Bowl caters to many customers, including individuals, families, corporate groups, and parties. They often organise special events and packages for birthdays, celebrations, and team-building activities. The company also runs bowling leagues and tournaments for those interested in competitive play.
Customer service is a priority for Hollywood Bowl, and they strive to ensure visitors have a positive experience. Trained staff members can assist with bowling techniques, answer questions, and provide support.
The company has developed a strong brand presence in the UK leisure industry, with a reputation for providing a fun and engaging entertainment option. It remains a leading player in the UK’s bowling and entertainment sector.
My kids love bowling, and I have also visited Hollywood Bowl whilst part of an adult group during birthday celebrations. Is this just a fad, as many other investors worry? Since the 80s and 90s, people have spent less time propping up pub bars, causing thousands to close. The demographic of drinkers is changing, and people want to experience new things and activities to enjoy a night out. Hollywood Bowl has witnessed this change and ensures it caters for all ages, serving alcoholic beverages, food and soft drinks and introducing new activities that all the family can enjoy.
Strategy
Hollywood Bowls’ strategy is to bring families and friends together for affordable fun and safe, healthy competition by:
- Delivering like‑for‑like revenue growth
- Actively refurbishing assets
- Developing new centres and acquisitions
- Focusing on our people
- Leveraging indoor leisure
Hollywood Bowls achieves this strategy by having a prominent presence in every major town nationwide by investing in new sites and acquisitions. I use Hollywood Bowl because it is the closest brand to me. If a ‘Tenpin’ (Hollywood Bowls’ biggest competitor) was closer, would I use them? I have never been to a Tenpin, so I cannot compare facilities; this would be some good market research should I visit the premises of Tenpin in the future.
With businesses such as Hollywood Bowl, I think the winner is the company who dominates the landscape first. The company has 69 centres across the UK in every major town and six centres in Canada, which it recently acquired through an acquisition. Each centre has an average of 24 bowling lanes (or three nine-hole mini-golf courses), a licensed bar, a diner and an amusements zone featuring the latest games designed to keep everyone entertained.
Competition
As stated above, Tenpin is the company’s largest competitor. There is competition from small vendors, but the general thought is that these smaller outfits differ from the facilities the two big names offer.
The Ten Group operates Tenpin. It also lists on the alternative investment market on the London Stock Exchange, has 49 centres across the UK and has yet to expand abroad.
My research shows that Hollywood Bowl is the cheapest for one game of bowling for one adult, on a Saturday in Leeds at 17:00 at £6.85 compared to Tenpins at £7.25. The food and drink look to match in prices, but Tenpin offers more discounted package deals. I think the slight price difference would not sway your decision to choose which one to visit.
The decision on which company I would use would be the facilities and customer service. I see from online reviews that Hollywood Bowl beats slightly, with many customers complaining about customer service and Hygiene at Tenpin.
Customer service is boosted by looking after staff. Again, Hollywood Bowl appears to beat Ten with development programs and happier staff that leave good reviews on Glassdoor.
Revenue for Ten Pin is also compounding at 13.6% stripping out covid, and earnings compounded at 10.95%; this compares to BOWLS at 13.5% and 24%, respectively. Both companies have no long-term debt, with net debt coming from capital leases.
Hollywood Bowl offers a dividend yield of 4.4%, while Ten Group offers 4.18%.
Financials
The Hollywood Bowls’ year-end date is 30 September.
The last Full Year results show that revenue was up 169% to 193.74, but the previous years were impacted by covid, so hardly any trading took place.
The 2022 figure is still 49% higher than in 2019, pre covid.
Most of the revenue comes from the Bowling games representing 47%, with food, drink, and amusements making up the rest at 25% each.
The company has a Revenue Compounded Annual Growth Rate (CAGR) of 13.54% since 2013, stripping out covid.
Operating Margins are healthy at 32%. These have also increased gradually since 2013. I love that people are willing to pay to throw a ball down a lane. Free money!
The business is profitable and fits nicely into my strategy of investing in profitable companies with low debt.
EPS came in at 22p for FY22. When the results were published, it gave the company a Price to Earnings Ratio (PE) of 10.5x, moving up to 12.5x in the following months.
The average Investor has been willing to pay a PE of 15x since the company was listed in 2016.
Estimates
EPS is due to fall back or stay flat in the coming years, as analysts are trying to price in a recession into their estimates and factor in that last year’s earnings were boosted by the public escaping their covid prison cells. There was also a slight boost to profits from a VAT rebate.
Analysts give estimates of EPS 21p by 2025. This has been raised by 2p since I first looked at the company in February. This new figure gives me a price target of 315p, an 18% upside from the current price of 265p. If the economic outlook improves, confidence in this cyclical leisure company will increase. Maybe this has already started showing.
The company appears to have hit a double top in price, as you can see belowand could retrace back to the 50-week moving average before having another go at breaking through. Or the price could push through from here, showing us confidence in the company and leisure industry is indeed returning.
Recent News
Last week Hollywood Bowl gave us their 1st half years results and confirmed they were in line to deliver estimated earnings. Could the second half of the year be affected more by the cost-of-living crises, or will things improve? I can’t answer this.
Longer term, bowling is here to stay for a while longer. Kids and adults love a place that caters to all occasions within a society that needs more stimulation. Many investors believe there’s much more upside in the share price of TEN Group, but they may struggle to dominate the areas Hollywood Bowl has already broken ground.
I am not invested in Bowl, but I watch with interest. Will the company expand more into Canada, the US or possibly Europe?
I may start a position on a retrace to the 50-week Moving Average, but I have more research to conduct before then.
These are quick notes to assess whether it’s worth more research. I’m happy to add Hollywood Bowl to the Watchlist.
I sold my position in ITV. I originally bought into the company due to an improved streaming service and content. The financials looked ok, and my estimated price target was 140p by FY2024. ITV could also become a takeover target from one of the big players.
I also have other criteria when looking at an investment. One is assessing the strength of the management team, and after the last few weeks of Schofield-gate, I must declare I have no confidence in this management. The CEO Carolyn McCall has been christened the ‘Queen of Woke’.
Woke, to me, is the liberal practice of saying and doing things you know are not based on facts but make different groups of people happy. I have heard many friends say and do things in the workplace to fit in but totally contradict themselves when outside.
The problem is that you can never make everyone happy, and a leader should not attempt to. It looks great on paper, but so does communism. I am a fan of a Machiavellian style of leadership. As a leader, you should accept that there will always be disagreement but must be firm with your decisions and should not be swayed by exterior forces. Moving problems around and lying to protect different groups of staff and customers is bad management.
As Warren Buffet states, there’s never just one cockroach in the kitchen. In the coming months, we could see more staff complaining about the toxic working environment at ITV, which could cause advertisers to move away from the drama.
I’m out, but ITV remains on my watch list.
I always see a Shoe Zone when I visit Asda or walk through my mostly boarded-up town centre. It always has customers of a more mature age or mothers buying their third pair of school shoes in a month. It offers low-cost, budget shoes.
It’s not a very exciting business, and I have often overlooked it to my peril. I have watched the share price increase 541% since 2020, and talks of recessions and global meltdowns can’t stop this momentum to the upside.
I have always known that the most profitable investments are the boring ones, and I need to investigate this further and implement some boring companies into my portfolio.
This week, Shoe Zone issued a very short-to-point trading update:
Trading Update
Shoe Zone is pleased to announce that since the publication of its Interim results on 16 May 2023, trading has exceeded expectations due to firm, recent trading through May and early June. This combination of strong early demand for summer products and lower container rates contributes to improved margins.
As a result, the company now expects adjusted profit before tax for the financial year ending 2 October 2023 to be at least GBP10.5m.
Excellent news. We should start seeing more companies comment on falling container rates and contradict the claims by the media that container rates would take five years to return to normal.
The previous pre-tax profit guidance I can find was £8.5m. so a 23.5% increase.
Original estimates for EPS were 14p. So, with today’s upgrade on estimates, we have an EPS for FY23 of around 16.7p with an average PE of 10. This gives me a price target of 167p. Today’s price is 232p.
Estimates for the coming years show EPS to be flat. I do not think that confidence returning to the consumer will affect Show Zone that much. Has the company benefitted from people cutting back? The more prosperous consumer in a new bull market may buy upmarket.
I may have to miss out again on Shoe Zone, but it stays on the watch list.
The online social YouTube 20-something gurus massively pumped S4! It’s unprofitable, but the investment thesis from said gurus is that the old man running the company who built WPP up from nothing to a multibillion-pound company. Can he do the same again?
It looks to me that Mr Sorrell fell out with the board at his last company and was ousted, and to get his own back has set up S4 to embark on a journey of rapid expansion to beat WPP before he pops it.
This could work if the economic conditions were right. Companies that embark on a daring quest like this need all stars to align for success. Tesla, for example, benefitted massively from a bull market. The likes of Rivian and Lucid, the new companies jumping on the EV bandwagon, do not stand a chance in current market conditions. They have missed the boat. Will it return before cash runs out?
If all macroeconomic conditions improve soon, S4 could prosper, but will Mr Sorrell admit defeat and have a lie-down before this?
The company is still doing well on its topline, but revenue is slowing as expected. The rest of the financials are awful, but growth investors only care about the Price to Revenue Ratio, which ignores everything below it.
I am watching growth investors fall by the wayside. The share price of S4 is down 85% from the highs. Some may say this is the time to get in. But I find investing in unprofitable, debt-ridden companies risky in bull markets, so not for me in current market conditions.
Next Week
Buckle in for a bumpy ride! Next week the monthly inflation data will be released in the US. The volatility will be a day trader’s dream, ignored by the long-term investor and hated by a swing trader.
