Lots to like about Hollywood Bowl and Electrocomponents

by Graeme Evans from interactive investor |

Though not top of investor shopping lists, these two stocks have generated big profits for shareholders.

Hollywood Bowl (LSE:BOWL) and Electrocomponents (LSE:ECM) today racked up another round of City upgrades to highlight why they are among the most respected stocks outside the top flight.

Shares in both companies were up around 3% after their latest trading updates went further than just easing fears about the impact of uncertain conditions in their respective markets.

Ten-pin bowling operator Hollywood Bowl scored highly with investors after reporting like-for-like growth of 5.5% for its financial year to September 30. That was much stronger than the 4% rise forecast in the City and the 1.8% posted the previous year.

Profits are now set to grow by more than 10%, which analysts at JP Morgan Cazenove said represented a third year of outperformance since the company's IPO in 2016.

The bank increased its price target by 4% to 270p, adding that the implied 6.6% like-for-like growth in the second half of the year was impressive against a backdrop of subdued consumer sentiment and lower levels of UK cinema admissions.

Source: TradingView Past performance is not a guide to future performance

Under Stephen Burns, who became chief executive in 2014, the company has focused on families and prime locations, including next to cinemas at edge-of-town leisure and retail parks. It has also used technology to make scoring easier and to lure players back to beat their best scores, while in 2017 the company adopted dynamic pricing to match demand.

Shares are little changed on the year at 225p, having fluctuated between 247p in May and 209p in August. JP Morgan said this was unfair on a stock offering stable returns and defensive properties.

They added:

"With headline bowling prices under £7 per adult, the appeal of the game continues to grow as a form of affordable entertainment for families, couples and groups of young adults."

The recent strong performance means Hollywood is looking at returning additional capital to shareholders, meaning another special dividend is likely on top of the 4.3p paid last year. Along with an anticipated increase in ordinary dividend for the full-year to 6.9p. this would make a total payment of 11.2p and yield of 5%.

N+1 Singer upped its 2020 profits forecast by 1% following today's update, which it said reinforced its 260p price target. Liberum has a target of 265p, with Shore Capital at 280p.

Shore said:

"We continue to view Hollywood Bowl as a core holding in the sector. Its 60 strong estate is well located and invested, with an attractive pipeline secured and a low-ticket offering well positioned against a backdrop of continued weak consumer sentiment."

Electrocomponents, meanwhile, has been performing ahead of expectations after growth in the second quarter of its financial year came in at 5%, compared with forecasts for 3%.

The former dotcom stock is now a stalwart of the FTSE 250 index after a run of strong sales growth in recent years. Trading in the Americas accelerated to 7% in its most recent quarter, while there was a 6% rise in Europe, Middle East and Africa.

Source: TradingView Past performance is not a guide to future performance

Analysts at UBS said:

"Although markets remain uncertain, Electrocomponents continues to take market share in its key regions."

The company, which is a supplier of more than 500,000 industrial and electronic components, trades with a forward price/earnings (PE) multiple of 15 times - in the middle of its historical range of between 12x and 20x. 

UBS added:

"We believe this under-estimates the self-help potential and is too focused on market trends, which we believe are too close to a trough." 

The broker has a price target of 705p, having seen the shares rise so far 21% this year to 616p.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article. 

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