Escape Hunt “well positioned to take market share” says Zeus Capital

Escape Hunt

Escape Hunt plc (LON:ESC) recent trading indicates that market demand for escape rooms is strong. To meet this demand, the company is building out sites on schedule and does not see buildout targets being impacted by the lockdown. As a result, we believe Escape Hunt is well-positioned to deliver high returns to investors post lockdown. During lockdown, we see cash management being supported by remote game sales, the government’s furlough scheme and effective cost control measures.

Strong recent trading: During half term (w/c 26 October), total sales were up 25% yoy, including new sites and digital products. The company’s eight mature UK sites traded at 96% of the 2019 level, despite four of the sites being affected by Government restrictions. EBITDA margins in the UK owned-operated sites have been substantially better than in prior periods, assisted by more efficient labour usage, the flexible furlough scheme and the VAT reduction.

In the six weeks prior to half term, trading at the sites subject to the lowest level of Government restrictions enjoyed encouraging performance while sites subject to higher restrictions saw reduced turnover. However, EBITDA before central costs was positive and ahead of management’s expectations due to higher EBITDA margins.

Buildout not impacted by lockdown: The company completed its 12th site (Basingstoke) in October and expects to complete its 13th site (Cheltenham) in November without any impact from the lockdown. The company expects to complete contracts for its 14th site (Watford) this week and plans to start fit-out this month.

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Remote games and cost management to moderate impact of lockdown: The Lockdown, which is currently anticipated to end on 2 December 2020, requires Escape Hunt to close its UK owner-operated sites. The Government’s furlough scheme and the company’s stringent cost controls should keep net cash outflows low. In addition, the company plans to grow its digital and remote play games, where revenues have been growing and EBITDA contribution already exceeds an ‘average’ mature UK owner-operated site. 

Long-term view: We believe Escape Hunt is well positioned to take market share in the emerging experiential entertainment sector. We see smaller, less well-resourced operators struggling against Escape Hunt’s diverse product suite, aggressive marketing plans, and premium branding. At the same time, we see costs and risks limited by opportunities in the weak commercial property market and increasingly flexible labour costs. Furthermore, we see prospects potentially boosted by digital and remote products.

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