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Wed 14th Mar 2018 - Update: Everyman results, Peel Hunt on Domino’s and Ten Entertainment Group
Everyman reports revenue and Ebitda boost: Everyman Cinemas has reported revenue increased 37% to £40.6m for the year ending 28 December 2017 compared with £29.6m the previous year. Adjusted Ebitda was up 67% to £6.6m compared with £4.0m the year before. Admissions rose 32% to 2.2 million compared with 1.7 million the previous year. A further three Everyman venues opened in the past 12 months, growing the estate to 22 sites. It has exchanged contracts on nine further sites in Newcastle, Glasgow, Liverpool, Altrincham, Lincoln, Cirencester, London’s Borough Market, Tunbridge Wells and Crystal Palace since January 2017. It raised £17m through an equity raise in October 2017 to help to fund the continued expansion of the estate. Chairman Paul Wise said: “With two new openings in the year in Stratford-upon-Avon and Kings Cross, together with the completion of some significant refurbishments in Muswell Hill and Oxted, 2017 marked another year of strong growth. The business delivered in line with the board’s expectations across all key areas. The group now operates 22 venues, up from 20 at the beginning of 2017. This includes a four-screen venue in York that opened immediately after the end of the year. The three-screen Kings Cross venue that opened during the year added to the small, temporary, one screen venue that was already in place. The board’s long held belief in this model as being the bedrock for significant growth within the UK has been further strengthened in the past 12 months and our ambitions continue to grow. The business currently has a further 13 committed venues and a pipeline that is still growing with an increasing geographic footprint across the UK. Since the year end trading has been in line with expectations and the film release schedule for 2018 looks both strong and diverse. While the pipeline for further new venues continues to develop well, the opportunities for growth organically from our existing estate are becoming increasingly important for the business. The directors believe that developing like for like growth, alongside continued footprint growth, will stand us in good stead to deliver venues that are used and appreciated by communities around the country and to grow the business for our shareholders.”

Douglas Jack – Domino’s is dominating growth in UK pizza market: Peel Hunt leisure analyst Douglas Jack has said Domino’s is dominating growth in the UK pizza market. Issuing a ‘Buy’ note on the shares with a target price of 425p, Jack said: “Domino’s is dominating growth in the UK pizza delivery market, having grown UK system sales by 8.6% (6.5% volume; 1.9% average order value in 2017). The market should continue to grow, reflecting 10% growth in household numbers over the next ten years (5.5% growth in urban population), improving home entertainment, and value for money (benefiting from off-trade drink prices) and convenience. Domino’s average spend per head is £7 (including collection orders), which compares favourably to an £18.43 average spend per head in restaurants in 2017 (source: MCA, based on the top 25 restaurant brands). It is worth noting although Domino’s headline prices may appear high, 87% of UK orders in 2017 were on promotion, with an average discount of 38%. The efficiency benefits of GPS tracker and territory splits are greater than we expected. Domino’s cited a case where labour costs are 760 basis points lower as a percentage of sales as a consequence of collection being 51% of sales versus the company average of 21.4%. GPS tracker is also reducing labour costs, delivery times and motor insurance costs. Although we forecast £250m to be returned to shareholders over the next three years (via dividends and share buy backs), we forecast almost no change in net debt/Ebitda over this period. This reflects the company’s substantial cash flow characteristics, which should support the company’s valuation. In our view, the 2018E price-to-earnings ratio rating should grow from 20 times towards the 24 times historical average, reflecting strong like-for-like sales, expansion, material efficiency benefits, upgrade risk and overseas operations now becoming profitable for the first time. Like-for-like sales remain a key share price driver, and we believe there is upside to our/consensus’ assumption of like-for-like sales (pre- splits) rising by 3%, particularly in H1 2018E, when comparables are very soft.”

Douglas Jack – we forecast 3.3% like-for-like growth at Ten Entertainment Group: Peel Hunt leisure analyst Douglas Jack has forecast 3.3% like-for-like sales growth at Ten Entertainment Group. Issuing a ‘Buy’ note on the company’s shares with a target price of 325p ahead of its full-year results on Wednesday, 21 March, Jack said: “Like-for-like sales rose by 3.6% in 2017E, split 0.4% in the first half and 7% in the second half, despite the negative impact of snow in early December. We believe that without the closed Chelmsford site, full-year like-for-like sales would have been 4.0%, split 3% footfall and 1% spend per head. We estimate Ebitda margins rose by 50 basis points to 26.6% (pro-forma up even more on a 52 versus 52-week basis), driven by strong like-for-like sales and bowling increasing its share of the sales mix. The company is also benefiting from labour costs having a relatively low share of the cost base, refurbishments and new innovations, such as ‘Pins on Strings’. The company added two sites net (three openings less the Chelmsford closure) in 2017E. We forecast the company opening two sites per annum in 2018E and 2019E. 2018E’s two sites have already been acquired, in the second month of the year, which creates upside risk given that expansion drives an average return on investment of circa 27%. At least six sites have benefited from the ‘Pins on Strings’ roll out, with early signs of delivering in line with management’s expectations. Given this, a conversion rate of ten per annum from 2018E and our forecasts assuming a 12% return (versus management’s original 50% target), we believe this could create attractive forecast upside. Like-for-like sales have averaged 5.7% over the past four years, helped by refurbishments, new product and technology. In 2018E, we forecast 3.3% like-for-like sales growth, which we believe Ten Entertainment Group should exceed in the first half of 2018E, despite the early March snow, aided by very easy comparables in the second quarter (due to warm, dry weather). We expect to at least hold our forecasts after the preliminary results. We believe the company is well placed to generate attractive self-financed growth in earnings and dividends over the medium term, operating in a sub-sector with limited supply-side risk. The shares currently trade on a 17% price-to-earnings ratio discount to Hollywood Bowl, which we believe is excessive given that we forecast Ten Entertainment Group to generate a stronger rate of earnings growth.”

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