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  • Writer's pictureMark Watson-Mitchell

Loungers – an excellent controlled growth potential for this ‘something for everyone’ company

You know what it is like – three of you just going from bar to bar and imbibing. Then one of you suggests that we could do this, we could run our own bar – that is just how it started for Alex Reilley, Dave Reid and Jake Bishop.

They had spent years in the restaurant and bar trade, so it was a natural. They found some ideal premises in a former optician’s shop in Bristol – that was way back in 2002.

By August that year they opened their first ‘Lounge’. Their easy all-day café/bar cum restaurant concept soon found favour with the locals.

A second ‘Lounge’ followed soon after elsewhere in Bristol. Gradually they went further afield.

By the time that Loungers (LON:LGRS) went public in May this year it was the proud owner of some 122 Lounges and 24 Cosy Clubs, with a slightly more formal bar/restaurant theme, scattered across the country in cities and large market towns.

By mid-June it opened its 150th site – taking the tally of new openings up to 11 for 2019 – it has carried on since then. By this morning the group was up to 154 café/bar/restaurants.

There is a potential for around 500 such venues spread throughout the UK – give it just another few years and that target will be comfortably reached.

Last week’s ‘maiden’ results announcement from the company for the year to 21 April 2019 showed revenue up 26.4% at £153m, with a like-for-like growth of 6.9%, impressive especially against the recent trading environment.

On an EBITDA basis the last year generated £20.58m against £16.64m previously.

When the group came to market it raised a net £56.4m, which when added to the £42.5m finance facility provided by Santander, the total funds were used to repay £17.9m of outstanding loan stock and £71m of bank debt.

Although the average opening costs of each site has risen from £845,000 to £928,000 in the last year, and that the current year target is for another 25 units, the company reckons that they could well be able to fund future expansion out of cashflow. In the full year 2018 they opened 22 sites, in the 2019 year they opened 25 sites. Cash generated from operations was up 13.5% at £22.4m (2018 £19.8m).

This is planned and determined growth that just has to be respected. It appears that the financial controls are well in place so the anticipation is that the expansion will carry on at a pace. It is continuing to improve both its menus and its kitchen efficiency.

When the company went public in May it issued shares with a value of £1,000 to some 600 of its team members, with such ownership becoming an ongoing feature going forward in the group’s growth.

Where their employees are so ‘front of house’ dealing with the public that scheme should be copied by scores of other companies.

Market analysts were putting a potential value on the company of £250m before it went public at £185m. Its shares have been up to 228p since the float at just 200p a share.

The Board and founders own about 16% of the group’s equity, while Lion Capital funds own 38.63%. Other institutions hold another 24%.

The new financial year has had a positive start and the Board is confident about the company’s outlook and for its future growth prospects.

Already broker’s estimates for the current year to end April 2020 to see revenue rise to £187m, with pre-tax profits (EBT) of £11.4m.

For the 2021 year £222m of turnover could produce pre-tax profits (EBT) of £148m, thereby clearly showing the economies of scale as the expansion programme continues.

I really like the look of this group, its roll out is as impressive as its site appeal and I see it generating some very healthy revenue and profits as it expands.

The shares at around the 205p level look very appealing.

My Target Price by the end of 2020 is 275p.


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