Ten-pin bowling operator Hollywood Bowl (BOWL) is a super-resilient, cash-generative company whose growth potential in the UK and Canada looks underappreciated by the market based on its current valuation.

Bowling is an affordable, family-friendly leisure activity with a defensive bent and Hollywood Bowl has scope to beat consensus estimates as robust customer demand, site refurbishments and selective price increases enhance like-for-like sales.

Even if economic conditions aren’t too favourable people still want the break from the stresses and strains of work and life which a trip to a bowling alley can provide. And a key part of the company’s strategy has involved sprucing up its venues to make them more attractive places to go.

A premium-priced private equity bid for smaller rival Ten Entertainment (TEG) demonstrates the experiential entertainment sector remains significantly undervalued. Once Ten Entertainment delists, Hollywood Bowl, blessed with higher-quality venues, will have scarcity value as the only listed player in an attractive space.

For the uninitiated, Hollywood Bowl is the UK’s largest bowling centre operator with a network of 69 sites and also operates the Puttstars mini-golf brand. While rolling out UK sites organically, the company has a further nine centres in Canada following last year’s Splittsville acquisition.

Despite its status as the UK’s leading bowling centre operator, Hollywood Bowl has fewer than 20% of the nation’s total sites so there is a substantial domestic growth opportunity ahead. Berenberg says the UK footprint has potential to grow to 93 over time, while the count in Canada could grow to north of 40 sites, driving sustainable medium-term growth.

Hollywood Bowl’s business in Canada, a fragmented and underinvested market ripe for expansion, generated impressive 15.1% like-for-like sales growth in the year to 30 September 2023, has ‘excellent’ momentum according to management and should become a much more significant component of group earnings going forward.

Up 4.1% last year, Hollywood Bowl’s UK like-for-like sales have historically beaten market expectations thanks to its compelling value-for-money proposition as well as investments in sites and technology and should continue to grow as the tough economic environment keeps footfall ticking over. Landlords are increasingly keen to bring Hollywood Bowl into new and existing developments as the tenant of choice, so the company’s new sites pipeline should continue to grow.

A strong net cash balance sheet gives Hollywood Bowl the firepower for self-funded growth, acquisitions, dividends and share buybacks. Risks to consider include any future declines in consumers’ disposable incomes or in the popularity of bowling, as well as future challenges in securing new sites at reasonable cost.

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