FoggyIsle.XYZ | Market's view on Loungers Plc

Loungers reported a record financial year with sales of £353.5m, which was 24.7% up and included revenue growth of approximately 15% from new sites, showcasing the effectiveness of their all-day café-bar model across various locations.
The company’s adjusted EBITDA for FY24 is expected to exceed forecasts, prompting a raised estimate to £43.5m, which represents a significant upward revision by approximately 3%.
Despite a 10% increase in share price over the past month, it is believed that the current valuation does not fully reflect the high growth potential of Loungers.
Loungers has consistently grown revenues with a compound annual growth rate (CAGR) of 22.5% from FY16-FY23 and forecasts significant free cash flow generation from FY24-FY26, which is expected to support around 100 new site openings.
Concerns are raised regarding the impact of no VAT relief in the budget on the hospitality sector, which might affect companies like Loungers that are part of this industry.
A strategy of self-funded growth through new openings is highlighted, with a pipeline of approximately 35 new sites for FY24, despite potential headwinds from fixed mortgage rate increases affecting some customers.
The company’s expansion plans include growing the number of its sites to over 650, indicating potential significant growth in revenues and adjusted EBITDA through FY26.
The new roadside dining brand, Brightside, has shown promising customer reactions with several sites already opened and more planned.
Concerns are voiced about maintaining sales growth amidst potential challenges such as food inflation and the broader economic impacts on discretionary spending.
Loungers’ recent trading updates and strategic expansions into new areas like Scotland and the roadside dining segment have been met with optimism, but there are also cautionary sentiments due to the uncertain macroeconomic environment affecting discretionary spending.