Finally, after being closed since March, leisure centres will be allowed to reopen on Saturday 25 July. Although a slightly later date than many would have wanted, this is still excellent news for leisure companies. The leisure shares I’m looking at here, seem to be in decent shape and should profit accordingly.
A high-potential share
Hollywood Bowl (LSE: BOWL) is the first firm that should profit from this reopening. Before the pandemic, the bowling company was thriving. In the six months to March, it had recorded underlying sales growth of 8.6%, and had reached highs of over 300p. The firm had also managed to achieve consistent cash flow growth, and an increasing dividend.
But obviously lockdown has had significant consequences for the firm, and it saw its share price decrease to under 70p. It currently trades at around 150p, which is still a 50% decrease from its recent highs. Yet I can see a full recovery for the share.
Firstly, it has a strong balance sheet. This includes a debt-to-equity ratio of under 40%, and a decent amount of cash. The firm has also endeavoured to cut costs during this pandemic. This has included reducing monthly cash burn to just £1.2m, which would theoretically allow it to stay closed until late 2021 (which would surely not be the case). It has also raised £10.5m from an equity placing and 99% of the employers were put on furlough. This prudence should hold the share in good stead for its reopening, and I would definitely buy today.
The return of gyms
Exercise regimes have changed drastically throughout lockdown, but the return of gyms will be very welcome news for many. The leisure share I would buy to profit from this is Gym Group (LSE: GYM).
Before lockdown, the firm was growing with great success. In 2014, revenue totalled £45m, yet this rose to over £150m last year. This was thanks to its low-cost memberships, 24/7 openings and no need for contracts. But in order for the gym to break even, Barclays has suggested that membership would need to be at least 86% of February 2020 levels.
Although many are sceptical and believe that people will continue to exercise at home, I’m quite bullish. Firstly, there is no doubt that exercising at home is a downgrade on gyms. As a result, although not everyone will return immediately, a longer-term return certainly seems on the cards.
The firm is also in decent shape, and recently raised £41m through a share placing. This should be sufficient in keeping the business afloat, especially as cash burn currently only totals £5m a month.
All in all, I believe that the reward of these leisure shares is greater than the risk. I personally prefer Hollywood Bowl due to its strong balance sheet and strong growth before the pandemic. But I also see significant upside to Gym Group, and would happily buy either of these shares today.
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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Hollywood Bowl and The Gym Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.