I like the look of today’s full-year results report from Hollywood Bowl Group (LSE: BOWL), the ten-pin bowling operator, and so does the market. The shares are up more than 6% on the news as I write.
The figures are good. Revenue came in 5.8% higher than the year before and 1.8% of the increase came from advances in like-for-like sales, which suggests the company’s offer is resonating well with its customers. Profit before tax rose 13.4% year-on-year and earnings per share lifted 2.9%. And those profits were backed up with tangible cash inflows with the net-cash-from-operations figure rising 5.7%.
Strong cash flow and special dividends
The good trading is undeniable and the directors celebrated by pushing up the ordinary total dividend for the year almost 8.9% to 6.26p. But they also announced a special dividend of 10.59p, which is almost 17% higher than last year’s. This is the second consecutive year that the firm has paid a special dividend, and chief executive Stephen Burns said in the report that the payments have been funded from cash inflow. The cash coming into the business is real and there’s more evidence of its effects in the net debt figure, which has fallen just over 69% to £2.5m. I have no doubt whatsoever that Hollywood Bowl is making fantastic financial progress.
I reckon the firm’s business model supports robust cash flow. Customers pay for the service just before they receive it, which contrasts with, say, the construction sector where goods and services are often delivered first and then firms often must wait for months before being paid for the work. Indeed, the construction sector is riddled with cash flow problems in a way that firms such as Hollywood Bowl aren’t. And we can see in today’s report what a difference timely cash flow can make to a business and therefore the options that the directors have, such as paying investors fat dividends!
A decent pipeline for growth
During the period, Hollywood Bowl has been busy with its refurbishment programme and rebranding sites it has acquired. It opened new bowling centres in Dagenham and Yeovil and plans two more centres in the current trading year to September 2019. The expansion pipeline is committed to the end of 2022 with the firm planning to open two new centres each year.
When the company gets its customers through the door and playing bowls, the name of the game is to maximise spend per customer. The average-spend-per-game figure rose just over 6% year-on-year, driven by initiatives such as the firm’s rollout of a new diner menu, which pushed the spend-per-game figure for food up 5.4%. There’s a new ‘i-serve’ lane ordering system, which makes buying food and drinks easier and is now in all the firm’s centres and should help to keep add-on sales growing.
There must be a fair degree of cyclicality in the firm’s operations because it would be easy for customers to forego expenditure on bowling during tough economic times. But Hollywood Bowl is growing and the cash is rolling in. I think the chunky dividend yield is attractive and the company is well worth your further research. With £1,000, I’d be tempted to buy some of the shares.