Leading analyst Simon French has “strongly reiterated” his Buy recommendation for Eclectic Bar Group, which he said announced a “solid set of maiden results” since it debuted on AIM last year.
Eclectic yesterday reported a 9.6% growth in sales to £11.4m and 13.7% growth in adjusted EBITDA to £1.7m. It also announced the acquisition the Lowlander Bar and Brasserie in London’s Covent Garden, together with the Lowlander brand, and announced that it has increased its banking facility from £1.5m to £5m for new acquisitions.
French, of Panmure Gordon, said: “Since the period end the group has continued to trade well with similar trading patterns to H1 and is confident this profitable progress will continue. We make no change to our forecasts (unchanged since IPO) and continue to forecast £2.9m EBITDA this year increasing to £3.6m next, although with the Lowlander acquisition (forecast annualised EBITDA >£230k) and the increased bank facilities the risk appears to be firmly on the upside.
“The stock trades on a CY 2014E adjusted EV/EBITDAR of 7.0x, a significant discount to the peer group on 10.6x. We strongly reiterate our Buy recommendation and 210p Target Price implying c24% potential upside.”
He added: “As expected no dividend has been declared but the group has reiterated its commitments to begin paying one from the end of the current financial year. The group has taken on four new sites over the last six months as well as a major refurbishment in Brighton. The Manchester Lola Lo site has outperformed sales expectations since opening in December.
“The group has increased its RCF bank facility from £1.5m to £5m with reduced interest rates and simplified covenants. The £850,000 acquisition of Lowlander (34.2% owned by Eclectic’s chairman Jim Fallon, who will receive c2/3 of his consideration in cash and the balance in shares) will provide the group with an additional growth brand, enabling it to channel two key growth trends of craft beer and food.
”Combined with the proven success of Lola Lo and Sakura plus the opening tomorrow of the group’s first Dirty Blonde we think it is well positioned to grow at least in line with the pace outlined at the time of the group’s IPO.”