Hollywood Bowl (LSE:BOWL) is a dividend stock with decent momentum. After rising 5% to 278p today (15 April), it has now gained about 12.4% in the past month, easily outperforming the FTSE 250 over this period.
Even so, this still leaves Hollywood Bowl some way lower than a high of 350p reached back in May 2024. Is the stock worth considering right now?
Decent H1
The reason for the share’s jump today was a solid trading update from the UK’s and Canada’s largest ten-pin bowling centre operator.
In the six months to 31 March, revenue grew 9.5% to £141.5m, with 1.9% like-for-like (LFL) growth. Encouragingly, the UK saw 2.6% LFL growth, showing how Hollywood Bowl is doing well despite the tough consumer backdrop.
During the period, it opened a new prime location in Edmonton, Canada, where it says trading has started well. This brought the estate to 93, with 77 locations in the UK and 16 in Canada. And a further three, including two in the UK, are due to open in the second half.
CEO Stephen Burns said: “Demand for high-quality, family leisure activities that offer great value for money also remains resilient in both territories, and our cash generative business model allows us to invest where we see opportunities and deliver profitable growth.”
Resilience
Of course, the biggest risk here is the potential for even more pressure on consumer spending due to the Middle East conflict. High government debt and a reliance on energy imports has left the UK economy more vulnerable than most, according to the IMF.
However, one thing I like about Hollywood Bowl is the balance sheet. It ended March with a net cash position of £26m, and no bank debt. This puts it in a strong position, even if the UK economy enters a downturn as energy costs soar.
Additionally, 76% of the company’s total electricity needs are hedged until September 2029, including 12% provided from on-site solar energy. And the firm says its high gross margin makes it “well-insulated against inflationary pressures“.
Bowling should remain popular
We’ll learn about profits and the dividend when the interim results are published on 27 May. But forecasts put the forward dividend yield at around 5%, a fair way above the FTSE 250 average.
The stock is pretty cheap as well, trading at 11.5 times forward earnings. I don’t consider that expensive for a market-leading company with a strong balance sheet that’s still growing in a difficult consumer environment.
On top of its core bowling and amusement arcade offerings, the company has been testing mini-golf, e-darts and go-karting in some locations. And average spend per visit has been trending up, with people buying more food and drink as they enjoy a bowl.
Finally, after seeing success in Canada, the firm is actively evaluating other international opportunities. I see no reason why the format couldn’t work in multiple countries, given that fun family activities like this are pretty universal. Hollywood Bowl is already targeting 130 centres by 2035.
Weighing things up, I reckon there’s a lot to like about this well-run company. The sensible valuation, 5% dividend yield, and long-term overseas growth potential make it a UK stock worth considering.
