Both Liberum and Peel Hunt have upwardly revised their full year estimates for Loungers, following the AIM-listed business’ positive interim statement yesterday (4 December).

Liberum noted that Loungers continued to outperform the market, “delivering the scarce trinity of lfl sales growth (5.4%), unit growth (10 openings) and margin growth (40bps)”, which drove up revenues and EBIDTA in the first half of FY20, by 22% and 26%, respectively.

It said current trading was encouraging and that new supplier terms should provide margin momentum in the second half and beyond, despite the well-publicised industry cost headwinds.

“We are lifting our FY20E EPS estimates by a prudent 2% but note this would be 14% had we given full credit for lower tax charges. Expansion headroom is vast and we have a high degree of confidence in growth forecasts (3YR EBITDA CAGR of c21%),” read the note from Liberum.

“We expect Loungers to continue to trade ahead of the market and open 25 sites for the full year and in future years,” it added.

Meanwhile Peel Hunt said that it would be upgrading its 2020E forecast by 3%, to reflect high gross margins. It said that it believed the company has good scope to grow its EBIT margins as it builds scale economies, with the margin rise of 60bps to 5.9% (on an IAS 17 basis), better than expected.

The note added that the introduction of new menus, albeit with minimal change in pricing, “provide numerous trading-up opportunities in food and wine. “Management believes it could boost food sales, particularly vegan, in the evenings and in Cosy Club,” it said.

Peel Hunt said its forecasts assume margins rise by 30bps in 2020E, despite the benefit of the new menus, better buying terms and differential pricing by region in H2. “They also assume 3.6% lfl sales over the full year,” added the note.