MIDAS SHARE TIPS UPDATE: Hollywood Bowl eyes cash payouts

Bowling is a fun, family-friendly outing, come rain, shine or snow. At around £6.50 a head, it is also cheaper than any other leisure activity. That makes bowling a more attractive option when money is tight than many alternative pursuits, from eating out to cinema trips. 

The industry had a rough time during the pandemic, with centres forced to close for months on end. But business has rebounded this year and seems to be holding up, despite all the economic headwinds. 

Hollywood Bowl is a case in point. In a recent trading update, chief executive Stephen Burns revealed that profits for the year to September 30 were ahead of market expectations, while revenues were 42 per cent higher than in 2019, the last year before Covid disrupted the sector. 

Attractive option: Bowling is a fun, family-friendly outing, come rain, shine or snow

Detailed results will be unveiled on Friday but City brokers are expecting sales of around £185million and pre-tax profits of £45.3million, accompanied by a 10.5p dividend. 

With the shares at £2.00, that puts the stock on a chunky 5.25 per cent yield, a sign of Burns’ confidence in the future. 

There is even talk of a possible special payout too, as the company has a history of returning cash to shareholders. Midas first looked at Hollywood Bowl in 2017, when there were 58 sites and the shares were £1.89. Two years later, the group had expanded to 60 sites and today, there are 73, including six in Canada, following the acquisition of a business there earlier this year. 

Burns is a shrewd operator. He and his team used the pandemic period well, refurbishing older sites, installing new skittle kit and upgrading booking systems. Now there are plans to expand the business here and in Canada, where demand is strong but many venues are much more old-fashioned than their UK peers. 

Hollywood Bowl is not immune from inflationary pressures, but it is more resilient than many businesses. Energy contracts are fixed to 2024 and a significant proportion of electricity is generated from the group’s own solar panels. Rental costs are under control and food represents just 8 per cent of total sales. 

All this means that Burns has been able to hold down bowling costs, keep meals competitively priced and offer staff a one-off cost-of-living payment in September and monthly bonuses, based on customer service and energy efficiency. 

Brokers expect a small dip in sales and profits for the year to September 2023 but a bounce-back in 2024, with dividends of at least 9p for both years.

Midas verdict: Hollywood Bowl shares were hit hard by the pandemic but they had risen to more than £2.50 earlier this year. Now, they are £2.00, pummelled by fears about the leisure sector more broadly. These concerns may well prove overdone. Burns is ambitious, hard-working and determined. He has also run the group since it was founded in 2010, another grim period. The shares are a strong hold, while the dividend income might tempt in new investors. 

Traded on: AIM Ticker: BOWL Contact: hollywoodbowlgroup.com or 01442 840200 

This post first appeared on Dailymail.co.uk