Hangout cafes operator Loungers (LGRS:AIM) saw its share price jump 7.7% on Wednesday as investors welcomed the reopening of many of its venues under the new tier system.
The market's upbeat mood was also fuelled by the company 's strong like-for-like growth and higher profit margins, although 11 weeks of lockdown in the 24 weeks to 4 October predictably took its toll.
Revenues for the period plunged 33% to £53.5 million but a 6.6% hike in EBITDA (earnings before interest, taxes, depreciation and amortisation) margins to 24.7% limited the impact on profits.
EBITDA of £13.2 million was just 8% down on the equivalent period last year.
WELL POSITIONED FOR GROWTH
The company’s flexible format - a cheap workspace, meeting spot for mums, teenage hangout and more - in suburban and market towns, and dawn-to-late opening seems to be winning loyal community support, and perhaps one of the longer-run solutions to challenged high streets.
Chief executive Nick Collins told Shares that Loungers business has ‘never felt more relevant’ to its customers’ needs in these strange times.
Loungers management team has effectively implemented changes to evolve the customer proposition while increasing efficiencies.
For instance, the company has introduced a table app through which 70% of revenues are generated and has simplified the menu by 20% while maintaining it broad appeal.
The benefits of a reduction in VAT on food which boosted gross margins and the boost of the government’s eat out to help out scheme.
BROKER APPEAL
House broker Liberum upped its fiscal 2021 EBITDA forecast by 16% to £11.6 million saying, ‘we expect Loungers to comfortably weather the short-term disruption from the current three tier restrictions across England and return to LFL sales growth, margin momentum and resumption of its roll out strategy of 25 new sites a year shortly.’
Douglas Jack, analyst as Peel Hunt increased his EBITDA forecast by 26% and commented, ‘H2 is likely to be tough, but H1 shows how strongly Loungers can and should trade when it emerges from Covid-19.’
The company generated strong cash flows in the period up 67% to £20.9 million and reduced non-property net debt to £13.5 million from £35.4 million previously.
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