It’s refreshing to hear a business reporting robust trading despite the unusual weather patterns we experienced in the UK through the summer, rather than blaming the weather for poor results. Such is the case with tenpin bowling operator Ten Entertainment Group (LSE: TEG), which delivered its half-year results report today.
The firm reckons it’s the second-largest tenpin bowling firm in Britain. It has 44 sites, which are mainly located on retail and leisure parks next to “family leisure brands” such as cinemas and casual dining restaurants.
Playing for growth
Growth is on the agenda with the number of sites up from 41 at this time last year. As with all destination businesses, I reckon it’s all about maximising spend-per-customer when they are ‘captive’ on site. Ten Entertainment augments the takings from its estate of around 1,000 bowling lanes with “a broad selection of entertainment options,” which includes amusement machines, table-tennis, soft play, laser games, pool tables, restaurants and bars.
Today’s figures are good. Revenue rose almost 8% compared to the equivalent period last year, net cash from operations shot up 18%, and adjusted earnings per share came in broadly flat. The directors reckon the results would have been better without the unusual weather we had in the period and expressed their optimism in the outlook by pushing up the interim dividend by 10%.
Highlights in the period included the four new site acquisitions and two full refurbishments. The company aims to relaunch the branding of the four acquired venues during the second half of the year. Chairman Nick Basing explained in the report that the firm aims to continue ploughing money back into the business to “strengthen” the quality of earnings from existing operations and to acquire “high-quality additions.” Despite the ongoing need for investment, the firm reckons its borrowings stand at around £2.8m, which is undemanding at around one third of last year’s operating profit figure.
An attractive yield
City analysts following Ten Entertainment expect earnings to grow around 14% this year, and 20% in 2019, which strikes me as decent growth if it’s achieved. However, with the share price at 256p, I reckon the stock market is being pessimistic. The forward price-to-earnings ratio for 2019 runs close to 11.5, and the forward dividend yield stands at a little over 5%. At first glance, that valuation looks attractive to me.
Of course, there’s always the worry with an entertainment business like this that operations could be cyclical. After all, entertainment is a discretionary spend for most people and it’s hard to argue that tenpin bowling is an ‘essential’ household expense. If economic times become tough, it seems likely that Ten Entertainment’s cash flow and profits will fall. Yet the company’s record of cash inflow is impressive over the past four years – rising each year and lending robust support to profits.
On balance, with the company’s growth strategy driving financial performance, I reckon the big yield is worth collecting as we wait for further expansion and for the share price to rise. After all, the next economic downturn could be years away.