It is fast becoming clear that post-coronavirus consumer behaviour is not so far removed from what went before. When it is sunny, crowds congregate at the beach. When the pubs are open – as they finally are this weekend – people make merry.
What we have yet to discover is how the recently locked-down behave when a full menu of leisure activities is at their disposal. Those firms still in enforced hibernation must hope that safety measures and stretched budgets do not combine to prevent a fast return to how life used to be.
Two such firms left out of current reopening plans are past Questor picks that were doing well not so long ago: Hollywood Bowl and Gym Group. One has brought bowling alleys back into fashion with families; the other runs no-frills workout spaces with no onerous membership contracts.
Both represent affordable pastimes as recession bites. Both offer attractive formats to struggling shopping centre landlords keen to fill vacant space. Both have tapped shareholders for fresh funds to tide them over. And both still hope they could be back in business later this month. But are shares in either worth buying?
They are certainly cheaper than they were. In January, Hollywood Bowl shares were changing hands for 50pc more than the price Questor tipped them at in August 2018. Now, they are trading at about 50pc off their peak. Gym Group’s stock market performance was similarly muscular after its July 2019 recommendation here but today the shares lie 42pc below that level.
Hollywood Bowl came into lockdown strongly, recording underlying sales growth of 8.6pc in the six months to March despite disruption at the end of the period. It trades from 61 sites, mainly out-of-town leisure parks.
The chain has been opening a handful of new sites every year and driving profitability by nudging up average spending per game to £10.19. It is also trying new things, including “pins on strings” technology that reduces faults and requires fewer on-site technicians.
One of Gym Group’s unique selling points is that it is easier for members to walk away than at pricier rivals. In a little over half of March, before its gyms closed, the chain, which operates from 179 sites, saw membership fall by more than 2pc to 870,000.
It has been growing, however: sales rose by 23.6pc last year to £153m despite the lure of Peloton cycling at home and (socially distanced) bootcamps in the park. Gym Group has done so by encouraging almost a fifth of members to go for its premium Live It package. This has helped to increase average monthly revenue per member by 7.6pc to £16.02.
In lockdown, Hollywood Bowl reduced monthly cash burn to £1.2m. Analysts at Peel Hunt, the broker, think the firm has around £35m of resources to allow it to cope even if closure lasts until late 2021, which it surely won’t. Reopening plans include using alternate bowling lanes.
Liberum, another broker, noted that breakeven could be achieved with 40pc of normal revenue, and some of the hit to Friday and Saturday peak times could be countered by greater use through the week.
Gym Group’s facilities are typically 15,000 sq ft so there is space for fitness fanatics to circulate.
In anticipation of reopening, some equipment has been taken out of action and high fives banned.
With fixed costs assumed at £10m per month, the company’s recovery is highly geared. Analysts at Barclays estimate that a 5pc change in membership equates to a 30pc swing in fair value.
Both of these leisure stocks offer potential but of the two, it is Hollywood Bowl – trading on 14 times forecast earnings for the year to September 2021 – that is more striking just now and is worth buying. Gym Group remains a hold.
Questor says: buy Hollywood Bowl, hold Gym Group
Ticker: BOWL, GYM
Share price at close: 154p, 153p
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