Loungers PLC (AIM:LGRS), the hospitality operator, could be another takeover target as the industry continues to consolidate, according to analysts at Shore Capital.
Following Fulham Shore’s acquisition by Toridoll for £100 million in cash last April and Wagamama-owner TRG accepting at 65p per share offer, the UK investment bank reckons the Cosy Club and Lounge owner could be next.
A valuation of 290p per share, representing around a 55% upside to current prices, could be the offer from potential buyers when placing it on a Fulham Shore/TRG-like EV/EBITDA ratio of 8x, ShoreCap said.
However, “accounting nuances”, significant reinvestment in growth and the nature of its forecasts have led analysts to believe Loungers will struggle to “screen well” in terms of valuations, arguing current price tags fail to consider the cash earnings of the business.
Lion Capital, the private equity company, owns a 26% stake in the café/restaurant operator and, in the view of the London-based broker, it would be instrumental should management decide to sell up.
Buying shares in 2016, when the company was valued at around £140 million, Lion Capital developed a 60% stake, but since then it has been a net seller, offloading £20 million when Loungers IPO-ed and a further £13 million since (according to ShoreCap estimates).
Should an offer come in at 290p, Lion would receive around £75 million from its remaining stake, providing an internal rate of return of 5%, but this figure could drive higher, dependent on a higher debt mix.
Overall ShoreCap rates the stock a 'buy', with shares in the company currently trading close to 2% lower on Friday, having opened at just over 180p.