If you’re looking for top growth and income shares to hold over the next decade then Hollywood Bowl Group (LSE: BOWL) needs to be on your radar. I’d argue, though, that there’s plenty to look forward to in the more immediate term, too.
This particular small cap’s expected by City analysts to record a 5% profits rise for the fiscal year to September 2020. However, I reckon, on the strength of early October’s latest trading update, that this number could be significantly upgraded soon, possibly when preliminaries are published on 13 December 13. In the update, the ten-pin-bowling operator said that results for the fiscal year just passed would sail past prior expectations.
I recently discussed the resurgence in this particular leisure activity when talking about rival Ten Entertainment. This new popularity was also apparent in Hollywood Bowl’s release, which showed a 5.5% improvement in like-for-like revenues, pushing pre-tax profits more than 10% higher from fiscal 2018.
A ballooning bottom line wasn’t the only reason for shareholders to punch the air, though, as the company – also boosted by what it describes as its “highly cash generative core business model” – announced that it was considering returning additional cash to its investors, too.
The Brexit issue might be causing UK consumers to tighten their pursestrings but this is translating into trouble for retailers rather than those operating in the leisure sector. This was evident in recent data from Deloitte which showed spending rise in nine of the 11 leisure sub-categories between July and September.
And critically for Hollywood Bowl, more than a third of people quizzed by Deloitte in the critical 18–34 age category said that they prioritise buying experiences over material goods. As Deloitte commented: “given the same age group has seen the greatest rise in disposable income confidence [in quarter three], experiential leisure spending could well see further growth.”
This isn’t the only reason to get excited, though. Like its industry rival, Hollywood Bowl is investing heavily in site refurbishments to pull bowlers through its doors in addition to splashing the cash to expand its estate. It opened two new complexes in the first fiscal half of last year to take the number on its books to 60.
On top of this, the Hertfordshire business is also pulling out the chequebook to bet on other fast-growing leisure segments as, under its ‘Puttstars’ brand it is also entering the hugely-popular mini golf arena (it has plans to open two trial centres in the current year).
At current prices Hollywood Bowl trades on a forward price-to-earnings ratio of 16 times, a multiple I consider quite reasonable given the company’s ambitious plans in a growing market. Add in a chubby corresponding dividend yield of 3.4% and I reckon this share is a brilliant buy for both growth and income chasers today.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Hollywood Bowl. 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.
Motley Fool UK 2019