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Ten Entertainment's current trading picks up as wet weather drives leisure seekers indoors

Numis Securities is baffled by the 40% discount at which the shares trade compared to Hollywood Bowl
Bowling alley
The projected PE is a measly 8.7 and the dividend yield a handsome 5.7%

Recently floated bowling alleys operator Ten Entertainment Group PLC (LON:TEG) is on track to meet full-year expectations.

The group released half-year figures that showed positive year-on-year like-for-like (LFL) revenue growth of 0.4%.

Chief executive Alan Hand said the LFL growth was “a good result” when considering the tough comparators, the impact of a late Easter and less favourable weather conditions during the latter part of the first half, which caused consumers to focus on more outdoor based leisure activities. 

Better still, the group has made a positive start to the second half of the year, and the LFL sales growth rate is now running at 3.6% year-to-date.

Revenue in the 26 weeks to 2 July rose to £35.1mln from £34.3mln the year before, and were up 6.4% on a proforma basis; the proforma comparison adjusts for the fact that there were 53 weeks in fiscal 2016 versus 52 in fiscal 2017.

Profit performance was distorted by one-off charges of £3.1mln relating to its stock market flotation in April, which meant profit before tax declined to £596,000 from £2.5mln the previous year.

Adjusted profit after tax rose to £6.0mln from £4.9mln in the previous year.

READ: A spare rather than a strike as the UK's second-largest UK ten-pin bowling operator, Ten Entertainment starts trading

"Our growth strategy remains on track. I am especially pleased with the impressive increase in our Net Promoter Score to 66% which reflects the improvements we have made to the customer experience over a long period of time,” CEO Alan Hand said.

"During the second half, we will continue to focus on our plans for growth including further site refurbishments, a long-standing and ongoing focus on the customer experience and an extension of the trial of a potentially transformational back of lanes technology. We also aim to engage more with our customers by both improving and leveraging our digital and yield management capabilities,"
Hand said.

An interim dividend of 3.0p has been declared.

Brokers highlight low valuation

Numis Securities said the results were solid and in-line with expectations.

“Progress is being achieved on top line (site acquisitions, refurbishments and pins-&-strings roll-out) whilst ensuring good cost control (labour and rents). With a dividend yield of 7% and trading at a 40% P/E discount to BOWL, we remain Buyers,” the broker said.

The broker was surprised by the 3p interim dividend, which reflects the board's confidence in the outlook, and has correspondingly increased its forecast for the full-year dividend by 29% to 9.7p.

“Since listing in April, the shares are flat, having traded broadly in tandem with peer Hollywood Bowl. We continue to be supportive of this niche but growing family entertainment market and believe TEG's ability to acquire and 'tenpinise' new sites will continue to drive shareholder value. With double digit earnings growth forecast for multiple years, the shares are too cheap in our view,” Numis said.

Liberum Capital Markets said current trading is benefiting from the wet weather.

“Important read-across for the wider leisure sector as LFL sales growth trends show a clear weather impact, thus supporting our contention that this was the biggest factor causing the late summer dip in trading for many Pub & Restaurant companies,” the broker said.

Liberum noted that the acceleration in LFL sales growth in the second half of the year was also boosted by the exit from an under-performing site.

“Consensus estimates are for EBITDA of £18.3m and EPS of 16.8p in 2017E and EBITDA of £20.9m and EPS of 19.6p in 2018E. This puts the stock on 2018E EV/EBITDA of 5.2x and PE of 8.7x,” the broker noted. 

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