Escape Hunt Analyst Q&A: Should be returning to cash generation and profitability after lockdown lifts (LON:ESC)

Escape Hunt plc

Escape Hunt plc (LON:ESC) is the topic of conversation when Zeus Capital’s Technology Analyst Bob Liao caught up with DirectorsTalk for an exclusive interview.

Q1: Escape Hunt, 2020 was an eventful year for the company but it appears to have performed relatively well despite the pandemic. Can you just give us an overview of the financial results?

A1: This is a company that was directly hit by the lockdown within the leisure market and requires people getting together and so, it was very much subject to full lockdown in 2020.

What we’ve seen is that the actual EBITDA loss has actually improved in 2020 compared to 2019 and that’s due to a range of factor, one of which the company has released a number of digital versions of its games. So, a lot of these escape games have been transferred to a digital format or a play-at-home format and that’s done very very well and come at very higher margins so that’s helped profitability. Secondly, they’ve been very tight on cost management when things as they saw were scaling down and finally, last but not least, is that they did take advantage of significant government support schemes which has helped them to manage their expenses.

So, all in all, they’re able to report a slightly better result for the bottom line despite the lockdown so not doing too badly overall.

Q2: With the lockdown expected to continue for a few more months, how well has the company resourced over the shorter term?

A2: It’s very much improved and I think there’s no issues whatsoever with the sector resourcing. The company has about £4 million of cash and because of the good expense management, the outflows on a monthly basis are only about £150,000 so I think over the medium term for them to get through this lockdown, I think the resourcing is more than adequate.

This is, of course, helped by a bit of the capital raised that happened in January, the raise of £1.4 million to just help with some of the investment that they plan to make. So, the additional £1.4 million will allow them to continue investing in the sites that they have even during lockdown so that when the lockdown does end, they’ll be fully ready to take advantage of the return of demand for their sites.

Q3: Looking longer term, what are the prospects for profits and cash generation for Escape Hunt?

A3: I think long term, it looks quite good because when they were able to reopen for a brief period after the summer, after the first lockdown, the demand that they got for their sites was very very strong. I remember, in October half term, the levels that they achieved in terms of volumes of people coming to their sites were about 95% on a like-for-like basis compared to the year before so almost a complete recovery in demand.

The company is thinking that if we do see this strong rebound for their sites, and you add to the fact that they’ve been expanding their sites and so they’ll be gaining scale in addition to that, when lockdown lifts, they should be able to return to cash generation and profitability on that basis. They’ve got the scale to do it now and the indications are that the demand is there to get each of their sites up to more than breakeven.

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