Loungers’ differentiated proposition has continued to drive strong like-for-like (lfl) sales growth, with an opportunity to rebuild margins sooner than the market expects, according to analyst Berenberg.
In an analyst note, Berenberg recapped its investment case, pointing out that Loungers has consistently outperformed the market through its unique proposition and ability to capture all-day trade, achieving 7.7% lfl sales growth in H124.
The analyst commented: “We believe now is a good time to revisit Loungers, a UK operator of all-day café/bar/restaurant hybrids. Recent takeover announcements in the sector, specifically of The Restaurant Group and Fulham Shore, have led to greater focus being placed on the low valuations many UK leisure names have been trading on. We increase our price target to 360p.”
Berenberg further noted Loungers has set a target to achieve its pre-Covid margins in the medium term and may be able to achieve this sooner than the market expects, citing easing cost pressures and internal levers such as menu reorganisation.
Post-IFRS 16, the adjusted EBITDA margin in FY19 was 18.7%, compared to c16.7% in FY23.
The analyst also reaffirmed its view that Loungers can continue its rollout across the UK, supported by the company’s continuous upgrades of guidance – from 400 potential sites to 600 – and the smaller estimated population needed to support a Lounge site, updated from 12,000 to 10,000.
The company’s new roadside dining concept, Brightside, stands at just three sites out of a total of 228, meaning its assignment as a key risk is “slightly overdone given its infancy”, despite the risks involved.
According to Berenberg: “Loungers trades on c15x P/E and c8x EV/EBITDA. We believe the company deserves to trade on a premium to other names in the sector that have been bid for, such as The Restaurant Group at 9x EV/EBITDA and Fulham Shore at c4.6x EV/EBITDA. This is due to its stronger top-line development, alongside its higher margin and returns profile.”
