Hostmore — Delivering on its plans

Hostmore (LSE: MORE)

Last close As at 21/11/2024

20.20

−0.80 (−3.81%)

Market capitalisation

GBP25m

More on this equity

Research: Consumer

Hostmore — Delivering on its plans

Notwithstanding the proposed tightening of restrictions amid concerns about the Omicron variant of COVID-19, Hostmore has accompanied news of continued buoyant trading with assurances of costs mitigation and further COVID-19 leasehold concessions this year and next. Confirmation of like-for-like EBITDA in October and November was up on 2019, and a positive response to Fridays’ Christmas promotions, reinforce our confidence in our current year forecasts. Meanwhile, expected growth opportunities in a favourable property market are being realised with a likely accelerated rollout (five sites in legal negotiations). We reiterate that an EV/EBITDA multiple of 6x FY22e is a sharp discount to that of its peers (we estimate c 10x average) and ignores Fridays’ strong rejuvenation prospects, backed by our forecast of FY22 financials well ahead of pre-pandemic levels.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

Hostmore

Delivering on its plans

Trading update

Travel & leisure

9 December 2021

Price

106p

Market cap

£134m

Net bank debt (£m), adjusted for

COVID-19 accruals, at August 2021

36

Shares in issue

126.1m

Free float

100%

Code

MORE

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

Business description

Hostmore has been newly formed to provide a platform for the development of hospitality brands. Its current operations are Fridays, a UK nationwide chain of American-styled casual dining restaurants (85 sites), and 63rd+1st, a new cocktail-led bar and restaurant brand (three sites).

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Hostmore is a research client of Edison Investment Research Limited

Notwithstanding the proposed tightening of restrictions amid concerns about the Omicron variant of COVID-19, Hostmore has accompanied news of continued buoyant trading with assurances of costs mitigation and further COVID-19 leasehold concessions this year and next. Confirmation of like-for-like EBITDA in October and November was up on 2019, and a positive response to Fridays’ Christmas promotions, reinforce our confidence in our current year forecasts. Meanwhile, expected growth opportunities in a favourable property market are being realised with a likely accelerated rollout (five sites in legal negotiations). We reiterate that an EV/EBITDA multiple of 6x FY22e is a sharp discount to that of its peers (we estimate c 10x average) and ignores Fridays’ strong rejuvenation prospects, backed by our forecast of FY22 financials well ahead of pre-pandemic levels.

Year end

Revenue (£m)

EBITDA
reported (£m)

EBITDA
pre-IFRS 16 (£m)

PBT*
(£m)

EPS*
(p)

EV/reported
EBITDA (x)

12/19

214.8

45.5

25.6

7.4

N/A

N/A

1220

129.1

23.5**

1.7**

(12.2)**

N/A

N/A

12/21e

150.0

35.0**

18.5**

(0.2)**

(0.2)

8.9

12/22e

242.0

50.5

29.5

15.0

10.2

5.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Including UK government COVID-19 grants:

2020 £19.1m and 2021 £14.8m.

While an increase on 2019 in comparable EBITDA for October and November may have been boosted by the continued, if reduced, benefit of VAT rate reduction (down 7.5% on 2019 since 1 October), we may reasonably assume the growing success of Fridays’ wide-ranging brand extension initiatives, as reported in 3% market outperformance in the 20 weeks from resumption of indoor dining on 17 May and newly endorsed by the ‘pleasing’ average spend per head on the launch of new menus. We point also to the contribution of delivery and takeaway as an incremental business stream and the popularity of cocktails, a Fridays staple.

Looking ahead, despite Omicron worries, the net booking rate for Christmas has held steady at a high level thanks to a themed promotion. Operational challenges such as staffing and energy cost inflation are being met respectively by effective yield management and long-term hedges. A favourable property market and marked reduction in competition on pandemic fallout are facilitating further landlord concession agreements in addition to c £1m achieved in October as well as access to prime sites at more attractive prices (projected opening of the fourth 63rd+1st, Fridays’ complementary cocktail-led bar and restaurant brand, in Cambridge in H122 plus a confirmed pipeline of five sites).

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