Escape Hunt plc (LON:ESC) offers high ROI and was growing rapidly ahead of lockdown. The company raised £4.3m in July to continue its rollout of new sites. We provide three rollout scenarios to reflect a range of consumer demand. Our scenarios envision EBITDA breakeven between Q1 2021 and Q1 2022 and annualised EBITDA between £0.6m and £2.3m by the end of 2022.
- Track record of high growth: Escape Hunt is a high growth company in the emerging experiential entertainment sector. The company provides premium escape-the-room experiences through a network of owner-operated sites in the UK and franchised outlets in five continents. Its UK sites grew revenues 63% yoy on a like-for-like basis in the 12 weeks to 1 March 2020.
- High ROI: Escape Hunt’s target economics per site offers high ROI and the company was approaching target margins ahead of lockdown. We estimate 36% ROI as operational efficiency rises with scale and experience.
- Flexible site cost structure and high operational gearing: Sites benefit from a labour model where costs can be managed flexibly at site level to match demand, resulting in around two-thirds of incremental revenue dropping straight through to the bottom line. With most of the head office costs essentially fixed, this means that as both the number of sites and revenue at each site grows, shareholders will benefit from significant operational gearing.
- High returns from franchise: The franchise model, notably in the newest arrangements in the US, offers the ability to further leverage the company’s portfolio of games together with the associated sales and marketing collateral. As the network grows, the group will increasingly benefit from economies of scale driving attractive margins.
- Lockdown and liquidity: During lockdown, the company closed all sites and furloughed 87% of staff. We estimate cash burn has been about £200k per month but costs should rise to over £400k per month as temporarily deferred costs return. The company has over £4m of cash, which should finance over nine months of unsupported cash burn even with no revenue and assuming no cost cutting. As revenue returns, cash will be utilised to roll out new UK sites.
- Recovery: On 9 July 2020, Escape Hunt reopened eight of its existing sites, with the ninth opening a week later, and plans to add five new sites by Q2 2021 and a further six by Q2 2022. Given the uncertainty around consumer demand as lockdown rules lift, we provide three potential scenarios rather than specific forecasts. In our base scenario we assume EBITDA breakeven by Q4 2021 and £1.2m annualised EBITDA by the end of 2022.
