Leisure stocks particularly those that offer relatively inexpensive experiences can be fairly resilient investments, certainlyduring uncertain economic times. After all, amid all the doom and gloom, people still want to be entertained.
So,how should investors view new-stock-on-the-blockHollywood Bowl (LSE: BOWL)? Lets take a look at todays full-yearfigures.
Maiden results
Total revenuefor the UKs largest 10-pin bowling operator grew just under 24% to 106.6m in the year ending 30th September, with a rise of 6.8% on like-for-like revenues. The business sawa 6.3% increasein the average spend per game and a 16.3% jump in the volume of games played.Despite this, pre-tax profits fell from 4.8m to 2.6m, thanks largely to exceptional items including costs relating to the companys recent IPO.
In addition to confirming that the business was trading in line with board expectations,CEO Stephen Burns reflectedthat 2016 had been a transformational yearfor the company and that Hollywood Bowl has a promising future as a listed business. One particular operational highlightwasthe acquisition of Bowlplex a move which allowed the 278m cap to add 10 new sites to its estate. Apparently, these centresare now delivering returns ahead of expectations.
Do these fairly positive figures set Hollywood Bowl up for a knockout 2017? Im not so sure.While 10-pin bowling clearly still holds appeal for many, the companyseasily replicated business model means competition will remain fierce. Moreover, Im concerned by the amount of debt Hollywood Bowl has on its books, even with net profits expected to rise to 16m in 2017.
Whilethe companymay be of interest to small-cap afficionados, I think there are better, lower-risk shares out there, particularly for those concerned by how Brexitwill impact on their holdings. These includetheme park owner, Merlin Entertainments (LSE: MERL) and cinema operator, Cineworld (LSE: CINE).
Universal appeal
Oddly enough, the share price graph for Merlin over the last year isnt dissimilar to the sort of ride you might expect from one of its roller coasters. Reaching a high of 490p back in September, shares have now dipped to the 425p mark, despite the company reporting a strong Halloween period and good progress on two new attractions in Dubai and Istanbul.Aforecast price-to-earnings ratio (P/E) of 19 coupled with adisappointingly low yield of 1.9% for 2017 isunlikely to get investors queueing for the shares.
Nevertheless,the bigattraction of Merlin for me aside from its portfolio of great brands is its geographical diversification, something Hollywood Bowl doesnt have. With sitesaround the world, the company isnt overwhelminglydependent on the UK for earnings. Operating margins are also significantly higher than those of the Hemel Hempstead-based company.
Cineworld is another option for similar reasons. While not having quite the international reach of Merlin, the companys operations in several European markets gives earnings a degree of protection. The universal appealof movies is also highly unlikely to diminish, particularly with films such as Lego Batman, Kong and Star Wars Episode VIII all set for release.
At the current time, shares in the 1.5bn cap trade on a forecast P/E of just under 15 making it the cheapest of all three to acquire. The 3.8% yield pencilled-in for 2017 is also better than that offered by both Merlin and Hollywood Bowl.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
