Loungers, which is forecast to generate strong profit growth over the next two years, represents “excellent value”, according to analyst Peel Hunt.
The group is unique in hospitality for being able to accelerate its expansion from record levels in a favourable leasehold market.
New sites have been of even higher quality, and should have benefitted average sales, with rent remaining at c.5% of sales, Peel Hunt reports.
“We believe the company, which is forecast to generate strong profit growth in 2024E and 2025E on cautious sales assumptions, represents excellent value, on 5.8x EV/EBITDA and 12% equity FCF yield,” the analyst states.
Loungers’ final results are due on 12 July.
The group has generated three-year like-for-like sales of 17.6% over the year to April 2023.
It has self-financed expansion, with 29 sites opened (15% growth) in 2023E, financed by internally generated cash flow.
Underlying net debt was £6.2m in April 2023 (excluding leases) and is forecast to remain minimal despite the company’s strong expansion plans.
Peel Hunt described Loungers as “a rarity” in that it has generated LFL volume growth vs pre-pandemic.
It has increased prices, but believes its relative competitive position has improved.
“This will be important if demand for value for money continues to grow, as we expect it will,” Peel Hunt notes.
The estate is expanding by c.15% per annum, with a 2022 cohort of openings was “above average”, and this is expected to be repeated by the 2023E cohort.
In May, Loungers indicated leasehold property market conditions have “never been better.”
“Although cost pressures are abating only slowly, we believe Loungers is well placed to generate strong sales growth through LFL trading and adding excellent new sites,” the analysts report.
The forecasts assume a cautious 1% growth in average sales per site in 2024E and 2025E.
“Before considering the potential to exceed this assumption, the EV/EBITDA rating, at 5.8x (IAS 17), represents excellent value, in our view,” Peel Hunt concluded, maintain its ‘buy’ rating.
