The FTSE 250’s Hollywood Bowl (LSE: BOWL) has come a long way since the lows of the 2020 pandemic.
Both the business and the share price have been recovering well. But today’s (3 June) interim results report suggests the company has now become a strong growth story. Furthermore, it’s paying generous dividends along the way.
In the six months to 31 March, the company had 71 tenpin bowling and entertainment centres in the UK. However, it’s also growing fast in Canada, with 11 centres at the end of the period and an impressive revenue advance of almost 47% year on year.
Expanding well
Much of the progress comes from acquisitions. So I see the firm as a consolidator and improver in its sector. Indeed, refurbishment and business optimisation is a big part of the directors’ game-plan here.
Revenue rose by just over 8% in the period and that delivered an almost 8% improvement in free cash flow and almost 12% in adjusted profit before tax. All of that filtered down to boost adjusted earnings by just over 6%, and the directors increased the interim shareholder dividend by nearly 22%.
Meanwhile, with the stock price near 337p, the forward-looking yield is just below 4% for the trading year to September 2025. That looks like a potential income worth having in my share account while waiting for further growth in operations to materialise.
But there are risks, of course. The most prominent is the undeniable cyclicality in the business. We only need look at the collapse of earnings, dividends and the share price in the pandemic to see the truth of that.
Businesses like this are often just the next general economic shock away from causing shareholders to lose money. The trouble is, we never know when, or if, that shock will come.
On top of that, I’d keep an eye on the firm’s debt levels if holding this one. Borrowings seem to be under control right now, and the business enjoys strong cash flow when the economic times are good. However, sometimes acquisitive companies can become carried away and fund growth by over-extending their finances.
A positive outlook
The outlook statement is positive and optimistic. City analysts expect normalised earnings to improve by just over 6% next trading year to September 2025.
That’s not a stunning rate of growth. But I reckon the ongoing expansion programme and the high dividend yield make the stock worth consideration.
However, Hollywood Bowl isn’t the only FTSE 250 company on my list. I’m also keen on staff recruitment business SThree, and molten metal flow engineering and technology company Vesuvius.
Others I’m focusing on include heat treatment and thermal processing services provider Bodycote, and vertically integrated construction materials enterprise Breedon.
Positive investment outcomes are not certain for any of the stocks mentioned here. However, they all have a decent-looking dividend yield and prospects for growth in earnings ahead. As such, I see them all as worth deeper research and consideration for my diversified portfolio.
