Loungers is materially undervalued - says Peel Hunt
Peel Hunt: Loungers is materially undervalued
The hospitability sector is feeling the squeeze from the cost-of-living crisis but Loungers (LGRS) is still ahead of the pack and the shares are undervalued, says Peel Hunt.
Analyst Douglas Jack retained his ‘buy’ recommendation and target price of 375p on the stock, which was trading flat at 207p on Friday afternoon.
Like-for-like sales were up 22% between July 2021 and July 2022, the highest among hospitality operators, leading Jack to assume average sales in 2023 will be 12% above 2019 levels. He noted the low levels of debt and the fact Loungers ‘has the advantage of being able to trade strongly all day’.
‘To manage margins and take market share, Loungers has changed its food distributor, making deliveries more efficient, as part of the transition to introducing a hybrid distribution model,’ said Jack.
‘The combination of like-for-like sales growth, successful new openings, increasing efficiency and scale economies should support forecasts after the next update. We believe the shares are materially undervalued.’