Ten Entertainment Group Plc

Ten Entertainment Group Plc (LON: TEG) is a Bedford, United Kingdom-based tenpin bowling operator. The Company also offers a wide variety of family-oriented entertainment activities which includes amusement machines, table-tennis, soft play, laser games, pool tables, and restaurants and bars services.

Investment Highlights: Ten Entertainment Group – Speculative Buy at GBX 125.06

• The Company has reopened majority of centres in England and Wales and is fully prepared to reopen Scottish Venture once the government allows.
• As per valuation metrics, EV/Sales and EV/EBITDA multiples of the Ten Entertainment Group Plc are currently lower as compared to the corresponding multiples of the Hotel & Entertainment Services It reflects, shares are undervalued as compared to the industry.
• Ten Entertainment Group Plc has a dividend yield of 2.94 per cent, which is higher than the industry dividend yield of 1.55 per cent. The Company has delivered a substantial ROE (Return on Equity) of 16.2% in FY2019 and stood higher against an industry median of 11.7%.

Key Risks

• The Company’s operations are impacted by the Covid-19 pandemic, as it will affect the customer confidence over spending on leisure activities.
• The Company’s operations are negatively impacted by risks related to Liquidity position.
• Overall business of the Company is affected by a change in government policies and regulations.

Re-opening of 35 Centres Across England (released on 14 August 2020)

• The Company reopened 35 Centres on 15 August along with 3 centres in Wales reopened earlier, representing 86% of total turnover.
• TEG has taken all security and safety measures related to covid-19 in place and has spacious family entertainment centres for maintaining social distancing.
• The Company has set up a new platform for web ordering for drink and food, which will allow customers to make orders directly to the table using QR (Quick Response) code.
• TEG has offered free games to NHS workers, and more than 6,000 workers have registered for free bowling.
• The Company will reopen centres in Scotland after the Government restrictions are lifted.

One Year Share Price Chart

Daily Chart as of 3 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Technical Performance

From the technical standpoint, shares were trading above the short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Conclusion

The Company is financially well-positioned at a low level of gearing with a healthy balance sheet. TEG has a detailed reopening plan to ensure that the business operates smoothly. The Company has re-opened 35 centres across England and 3 in Wales, which contribute 86% of revenue with proper social distancing protocols. The Company’s pipeline of new site opportunities continues to increase with acquisitions and new developments. The prospects are robust, with a clear ability to sustain a prolonged period of closure. Overall, the Company is in a strong financial position with low debt and sufficient cash generation to self-fund the plans for growth. The stock made a 52-week low and high of GBX 110.00 and GBX 339.00, respectively.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation for Ten Entertainment Group Plc at the current price of GBX 125.06 (as on 3 September 2020, before the market close at 11:10 AM GMT+1) with lower double-digit upside potential based on 36.50x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.).

City Pub Group Plc

City Pub Group Plc (LON: CPC) is a London, the United Kingdom-based company, which owns and manage an estate of first-rate pubs throughout the southern half of England and Wales.

Investment Highlights: City Pub Group Plc – Speculative Buy at GBX 67.02

• The Company is fully prepared to open remaining pubs in the UK after further easing was allowed in lockdown.
• As per valuation metrics, EV/Sales and EV/EBITDA multiples of the City Pub Group Plc are currently lower as compared to the corresponding multiples of the Hotel & Entertainment Services It reflects, shares are undervalued as compared to the industry.
• In the last one month, the Company delivered a decent return of 6.47% and delivered higher returns compared to the FTSE-AIM Index. Over the course of 4 years (FY15 – FY19), the company’s revenue surged from GBP 20.31 million in FY15 to GBP 60.03 million in FY19. Compounded annual growth rate (CAGR) stood at 31.12 per cent.

Key Risks

• The trading was jammed by the impact COVID-19 as it results in trade reductions in certain sites.
• The Company is exposed to several political, micro, and macro-economic headwinds like the slowdown in shoppers spending and inflationary pressures. 

AGM Statement (Released on 27 July 2020)

• The Company announced that with the easing in lockdown, the pubs were permitted to re-open in England. The Company reopened 24 pubs on 4 July and 8 pubs in the next two weeks period.
• The Company is looking to open remaining pubs in the next two months or if further relaxation given in lockdown measures.
• The Company witnessed encouraging performance since reopening. CPC achieved a 63% sales level versus previous levels on a like-for-like basis and generated total sales of £1.8 million for 3 weeks period since July 4.
• The Company made a significant reduction in the cost base, which has allowed profitable trade and cash generation during the last 3 weeks.

One Year Share Price Chart

Daily Chart as of 3 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Technical Performance

From the technical standpoint, shares were trading above the short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Conclusion

The market in which the Company operate is full of uncertainty. The Company showed decent performance with total sales of £1.8 million in the last 3 weeks trading after the easing in lockdown. The Company has taken multiple actions to reduce the cost base and achieved a 63% sales level versus previous levels on a like-for-like basis. The Company at present is trading with 32 pubs open out of 48 pubs in England, and remaining pubs are expected to open in the coming two months period. CPC is confident in rebuilding sales to previous levels with a lower cost base. The stock made a 52-week low and high of GBX 36.25 and GBX 214.66, respectively.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation for City Pub Group Plc at the current price of GBX 67.02 (as on 3 September 2020, before the market close at 1:25 PM GMT+1) with lower double-digit upside potential based on 21.10x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.).

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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