Ten Entertainment Group — Strike!

Ten Entertainment Group — Strike!

Ahead of planned reopening on 17 May, the message of Ten Entertainment Group (TEG) is clear. With tenpin bowling as the driver, it has the product (a successful value proposition enhanced during the pandemic) and the resources (strong balance sheet with over £18m liquidity headroom) to capitalise in both the short and longer term. Despite 2020 sales down 57% because of COVID-19 restrictions investment continued apace (c 70% of 2019 levels), from digital to key refurbishments and ‘next-generation’ expansion. Consequent scope for lucrative marginal revenue growth on total 1.3m sq ft is a formidable draw, as is the outlook for reopening and beyond. Pent-up demand seems a given in view of TEG’s buoyancy after the spring 2020 lockdown (August/September l-f-l sales 77% of prior year despite 50% lane capacity, addressed now by lane dividers), while pandemic fallout should facilitate expansion on advantageous terms.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Ten Entertainment Group

Strike!

Travel & leisure

QuickView

21 April 2021

Price

240p

Market cap

£164m

Share price graph

Share details

Code

TEG

Listing

LSE

Shares in issue

68.3m

Business description

Ten Entertainment Group is a leading UK operator of family entertainment centres with tenpin bowling as anchor product (1,100 bowling lanes at 46 sites). Other activities (53% of 2019 sales) include food and drink, amusement machines, table tennis, pool tables, escape rooms, soft play and laser games.

Bull

Well-invested nationwide estate with a strong position in the growing experiential leisure market.

Favourable environment post-pandemic, notably pent-up demand, reduction in competition and low-cost expansion opportunities.

Proven high-margin, cash-generative model with robust finances (c £18m liquidity headroom at end March 2021).

Bear

Continuing COVID-19 restrictions (sites scheduled to reopen on 17 May).

Economic uncertainty, mitigated by value and broad family-entertainment proposition.

Risk of market entrants.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Ahead of planned reopening on 17 May, the message of Ten Entertainment Group (TEG) is clear. With tenpin bowling as the driver, it has the product (a successful value proposition enhanced during the pandemic) and the resources (strong balance sheet with over £18m liquidity headroom) to capitalise in both the short and longer term. Despite 2020 sales down 57% because of COVID-19 restrictions investment continued apace (c 70% of 2019 levels), from digital to key refurbishments and ‘next-generation’ expansion. Consequent scope for lucrative marginal revenue growth on total 1.3m sq ft is a formidable draw, as is the outlook for reopening and beyond. Pent-up demand seems a given in view of TEG’s buoyancy after the spring 2020 lockdown (August/September l-f-l sales 77% of prior year despite 50% lane capacity, addressed now by lane dividers), while pandemic fallout should facilitate expansion on advantageous terms.

Strategy unbowed

Given pre-COVID-19 momentum (bowling market up by a quarter since 2014, per Mintel, and TEG’s l-f-l sales up c 10% in the first 11 weeks of 2020), it is little surprise that the company should have continued, where possible, to develop in 2020 despite disruption. Indeed, its belief in the appeal of its offering (competitively priced at £13.99 spend per head in 2020 and a highly accessible form of family entertainment) may only have been reinforced by the pandemic, not least with the accent for the time being on domestic leisure. Management reports a ‘step-change’ in digital strategy with a new table ordering app for F&B, a more than doubling in online bookings to 70%, enhanced scoring technology and increased social media engagement (a third of customers now on database). Maximising use of space continued via the installation of lane dividers to restore 100% capacity during social distancing, while the roll-out of escape rooms broadened the offer. TEG’s first new build (Manchester Printworks) was duly completed and launched to acclaim.

Unsurprisingly resilient

Despite trading days halving (c £7m cash burn in the spring lockdown) and a sharper fall in sales, 2020 saw bank net debt, eased by H1’s £5m placing, grow by £8.5m to £12.6m, which allowed significant strategic capex (c 70% of 2019 levels). A £14m additional facility raised liquidity headroom to £18m+ at March 2021.

Valuation: Tried and tested

Demonstrably successful before COVID-19, TEG should be a clear beneficiary of economic tailwinds, assuming a properly managed relaxation of restrictions, and a benign structural environment. 2022 consensus forecasts appear cautious.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

84.1

23.6*

19.3

3.7

12.4

1.5

12/20

36.3

3.3

(23.2)

-

N/A

N/A

12/21e

47.8

9.1

(14.3)

0.7

N/A

0.3

12/22e

86.9

33.5

15.2

8.0

15.8

3.3

Source: Refinitiv. Note: *Pre-IFRS 16.

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Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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