Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Hollywood Bowl (LSE:BOWL)
Why we like it: “Before Covid, Hollywood Bowl (LSE: BOWL) – the UK’s largest operator of tenpin bowling lanes – was steadily growing revenue, improving margins and returning lots of cash to investors. While progress was scuppered by lockdowns, the company seems to be getting back on track and returning to a position of strength. The business seems to be back to pre-Covid health financially and operationally and we continue to see it as attractive today, with an eye on its long-term potential.
“Hollywood Bowl’s management team has done a great job consistently increasing like-for-like sales by refurbishing older centres, improving food options, and finding ways to encourage customers to visit more often and spend more per visit. On top of this, opportunities for steady expansion through one or two new centres annually should continue to present themselves, especially as retail landlords are always on the lookout for stable, attractive anchor tenants to drive footfall to stores.”
Why we like it now: The recent interim trading update from the tenpin bowling centre operator showed it continues to rebound from the depths of lockdowns well. Like-for-like revenues were up 3.5%, total revenues were up 10.9% thanks to new centres in the UK and Canada, and we were told cash generation remained strong. It’s still far too early to tell whether Canadian expansion will go as well as domestic growth has, but so far the signs are promising in this huge new market. As of writing the group traded at what we think is an attractive enterprise value to EBITDA ratio of 8.1x while offering a respectable 4.45% dividend yield. Put all that together and we think Hollywood Bowl is worth taking a closer look at in May.
