RBC Capital has initiated coverage on Hollywood Bowl Group PLC (LON: LON:BOWL) with an Outperform rating and a price target of GBP4.20.
The firm bases its optimistic view on the company's potential in the Canadian market, which it believes is not fully recognized by investors at the moment.
According to the coverage, RBC Capital analysts have conducted site visits in Toronto and utilized data-driven analysis to assess Hollywood Bowl's expansion potential in Canada.
Their findings suggest that the group's current market valuation does not fully account for its Canadian operations.
Hollywood Bowl is trading at a discount to its long-run EBITDA multiple of 8.5x, and RBC Capital argues that valuing the UK business at this average implies that the Canadian EBITDA is being valued at only 2.0x.
The firm praises Hollywood Bowl's operational efficiency and its management team, describing them as "premium." RBC Capital's analysis indicates that the group's current share price is an attractive entry point for investors, suggesting that the stock is undervalued.
Hollywood Bowl Group PLC is a leading operator of bowling centers in the UK and has been exploring opportunities to replicate its successful business model in Canada. The Outperform rating by RBC Capital signals confidence in the company's growth strategy and its ability to capitalize on the Canadian market.
InvestingPro Insights
Adding to RBC Capital's optimistic outlook on Hollywood Bowl Group PLC (LON:BOWL), recent data from InvestingPro provides further context for investors. Despite the company's current unprofitability over the last twelve months, InvestingPro Tips suggest that net income is expected to grow this year, aligning with analysts' predictions that the company will turn profitable. This projection supports RBC Capital's view that the stock may be undervalued at current levels.
However, investors should note that Hollywood Bowl suffers from weak gross profit margins, with InvestingPro data showing a gross profit margin of 17.08% for the last twelve months as of Q2 2024. This metric underscores the importance of the company's expansion efforts and operational efficiency improvements to boost profitability.
The company's revenue growth of 6.69% over the same period, coupled with a significant EBITDA growth of 1329.94%, suggests that Hollywood Bowl is making strides in its operational performance. This progress could be crucial as the company seeks to capitalize on the Canadian market opportunity highlighted by RBC Capital.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Hollywood Bowl Group PLC, providing a deeper dive into the company's financial health and market position.
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