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, there are three main opportunities for future growth: opening one or two new centres annually in the UK, expanding the new Puttstars mini-golf brand, and the latest being its higher risk/higher reward expansion into the large Canadian market.”
Why we like it now: Dire prognostications for the confidence of the UK consumer that were front of mind for much of 2021 haven’t exactly panned out in 2022. For sure consumers are feeling the pinch even as inflation cools, but from what we can tell spending on experiences, particularly affordable family friendly ones like bowling, appears to be holding up well. That puts Hollywood Bowl in a good position to continue executing its familiar strategy of steady new centre openings and consistent like-for-like sales growth from its existing centres. It’s early days for the Canadian expansion but signs are positive there as well. FY23 margins will be down year-on-year due to some Covid-19 business relief effects rolling off but in general as long as the year offers up more revenue growth, further significant cash generation, and higher dividends then we think Hollywood Bowl is worth checking out this month at its current valuation.
