Analysts’ verdict: Peel Hunt and Liberum on Loungers

Peel Hunt said the ‘strong momentum continues’ at Loungers:

2019 EBITDA is in line, up 25% to £18.3m (after pre-opening costs) vs our forecast of £18.2m, with LFL sales up 6.9%. LFL sales have remained strong in early 2020E, a year for which we are forecasting 23% EBITDA growth, despite minimal change in forecast net debt. We are holding our forecasts, but believe our 2020E assumptions of 3.6% LFL sales and stable margins offer attractive upgrade risk…

We forecast stale margins in 2020E, supported by strong LFL sales growth, increasing scale economies and recent price increases (summer menu price increased by 2.1% for drinks and by 2.9% for food) and greater trading opportunities…

We believe Loungers as carried strong LFL sales and pricing momentum in 2020E, as well as the benefits of recent contract retendering. The company should quantify its H1 2020E LFL sales when it announces its AGM statement in mid-October, an event we expect to act as a positive catalyst for shares.

Anna Barnfather at Liberum recommended BUY:

Maiden results came in ahead of expectations underpinning forecasts and delivering on the strategy set out at IPO. Momentum has been maintained into the new financial year with eight openings bringing the total portfolio to 154, and with a strong pipeline to maintain a 25pa opening rate. Loungers’ all-day café-bar concept continues to appeal to a broad demographic with LFL sales growth outpacing the market. A low capex/opex model drives both high returns and fast paybacks and the headroom for expansion is vast, backed up by an unrivalled track record.

Upside potential

• LFL sales growth continues to outpace the market. Our forecasts of 4.0% this year is cautiously set with an AGM update due October.

• Supplier renegotiations will benefit gross margin from 2H, annualised savings of c£1.25m.

• Brexit preparations to secure supplies, no behavioural changes.

Forecasts and valuation

• Small changes to forecasts, which 4 months into the year, are well underpinned.

• Importantly, we expect Loungers to be able to self-finance its 25 new openings this year.

• Current valuation is undemanding given track record. TP of 275p.