RBC sees long-term buying opportunity in Hollywood Bowl despite weather impact

RBC Capital Markets maintains an "Outperform" rating on Hollywood Bowl Group (BOWL:LN) with a revised price target of 410p (down from 415p), citing a 59% upside despite recent weather-related trading headwinds. While acknowledging that adverse weather impacted like-for-like volume growth, RBC analysts believe the market overreacted to half-year results, pointing to strong spending per game (up 6.3% in the UK) and a robust pipeline of new sites through FY2027 as indicators of underlying strength; they forecast continued revenue growth, particularly in Canada, and project a net cash position of £10.3 million by FY2026 despite planned shareholder returns and capital expenditure.

Analysis

RBC Capital Markets identifies Hollywood Bowl Group (BOWL) as a long-term buying opportunity, asserting that the recent share price decline following its half-year results was an overreaction to temporary weather-related headwinds. Despite adverse weather in the UK (hottest spring on record) and Toronto (heavy snowfall) suppressing like-for-like volume growth, RBC highlights strong underlying business fundamentals, including a 6.3% increase in spend per game in the UK, driven by a 5.9% rise in bowling spend and an 11.6% uplift in amusement spend, supported by dynamic pricing and increased VIP lane uptake. Food and drink sales saw a more modest 1.1% growth. The company's expansion in Canada is showing positive early signs, with two new sites performing ahead of expectations, and Canadian revenue is projected to grow faster than in the UK. RBC maintains its "Outperform" rating, slightly adjusting its price target to 410p from 415p, which still implies a significant 59% upside from the trading price of 265.5p at the time of the report. This valuation is based on an unchanged 9.5x FY2026 estimated EV/EBITDA multiple. Adjusted EBITDA forecasts for FY2025 and FY2026 were marginally reduced by 0.7% each, attributed to revenue mix shifts and FX headwinds. Importantly, Hollywood Bowl's balance sheet is projected to remain robust, with a forecast net cash position of £10.3 million by FY2026, even after planned shareholder returns of £83 million and capital expenditure of £70 million over two years. Key risks include intensifying UK competition, rising labor costs, potential deterioration in Canadian consumer sentiment, and delays in new site openings, though RBC views the current valuation as a compelling entry point, focusing on controllable business aspects.

Key Decisions for Investors

• Investors could consider the current valuation as an attractive entry point for a long-term position, given RBC's 'Outperform' rating and substantial price target upside.
• Monitor upcoming trading updates for evidence of normalized like-for-like volume growth as weather impacts subside, particularly focusing on customer demand recovery during typical trading conditions.
• Closely track the execution of the Canadian expansion strategy and its contribution to revenue growth, alongside the company's management of operating costs and competitive pressures in the UK market.