By William Turvill
The Great “Escape” Hunt?
Investors in Aim-listed Escape Hunt have endured a torrid time of late. Shares were trading at 135p back in 2017, have been in gradual decline for years and, after a particularly tough autumn last year, shares are now sitting at a mere 2.75p.
In an interview with Total Market Solutions, Escape Hunt’s chief financial officer Graham Bird – a chartered accountant and investment veteran who formerly headed up Gresham House’s public equity business – has outlined the external factors that he feels have dragged down Escape Hunt’s share price and explains why he thinks the firm is on a good footing for the future.
What is Escape Hunt?
Escape Hunt claims to be the world’s largest escape rooms business. If you haven’t heard of escape rooms, you’ll probably know people who have tried them out. In a nutshell, groups of friends visit the venues and pay to be locked in a room for an hour. It’s more fun than it sounds – there are a series of clues throughout the room that, if solved, can lead visitors to unlock the room before the hour is up.
Escape Hunt, founded in 2013, has 53 locations across 24 countries. The company operates its own venues in the UK and works with franchise partners in other countries.
Last week, Escape Hunt announced the launch of a new Doctor Who-themed escape room it will be running in association with BBC Studios. The business is also in the process of diversifying by introducing new products, including outdoor games and virtual reality games.
How has it been performing financially?
The company put out a trading statement last month that reported decent revenue growth in 2019, after a “particularly strong” Christmas period.
Turnover in the UK was £3.8million, up from £1.1million in 2018, while international revenue was £1.1million. In total, the company reported £4.9million of revenues, up from £2.3million.
More detail will come out when the company reports its full-year results. Last year’s – which reported pre-tax losses of £9.98million – was put out in early May.
So what has gone wrong?
Bird believes that no company announcements in the second half of 2019 drove its share price down so dramatically, so he is pointing the finger at external factors.
“There is no doubt that the fall-out on smaller companies following the Neil Woodford saga in the summer had an impact,” he said. “For many institutional investors, focus on liquidity and pressure to reduce exposure to the smallest companies was evident.
“Escape Hunt was victim to this, with one of its largest institutional shareholders becoming a seller as a result. With few other institutional shareholders able to step in this overhang undoubtedly caused a drag on the shares.
“The company also suffered from the fact that the market was cautious on smaller companies and about consumer-facing companies in particular, in the run-up to Brexit. This meant fewer buyers at a time when we had sellers.”
On top of Woodford and Brexit, Bird said the “biggest factor” in the share price demise was the fact that Arrowgrass, one of its major shareholders, was put into administration.
He said: “We understand that the administrator initially sought to place the shares with a broker but as soon as the market got wind of the significant block being sold (>10% of Escape Hunt’s shares), the shares fell heavily. Having first tried to place the shares around 50p, the block finally cleared at 10p.
“The share price recovered somewhat thereafter, but there was still a residual holding from the other institutional shareholder which tempered any fuller recovery.”
Is Bird confident shares can recover?
He is hoping the worst is now past Escape Hunt.
“Both Arrowgrass and the other institutional shareholder are now completely out, so we believe these technical sellers are behind us,” he said.
“The fall in the share price, coupled with an absence of any news from the company in the latter part of 2019 seems to have rattled some of our retail shareholders too.”
He hopes that a recent trading update would “quell some of the concerns” around the business.
Bird added: “We believe there is significant value in the business, evidenced by the cash invested to date. There is huge value in the IP that has been generated, including games, know-how, execution capability and of course, the network of Escape Rooms both franchised and owned.”
He said that recent revenue growth “has given management confidence that the business model is working and delivering very strong return on investment metrics”.
“Escape Hunt was really a start-up when it floated in 2017 and the management team has been understandably cautious in rolling out the network, wanting to be sure about what type of sites work well, and seeking to reduce the cost of building games and installing them at sites before committing to too many leases.
“Whilst the pace of roll-out has been a source of frustration to the stock market, we believe the business has the evidence of success at the sites it has established and has significantly improved the returns profile for new sites by reducing the cost of build and installation through its experience so far.
“The individual site economics are proving very attractive, so the opportunity to accelerate the roll-out of more sites is what the board is now looking at as we are confident of our ability to replicate the success in our existing sites.”
And what does the future hold for Escape Hunt?
Bird believes that, over a three-five year period, Escape Hunt management “can build a highly profitable and valuable business”.
He said: “In the past, the company has talked about an owner-operator network of up to 50 sites which, based on the site economics we are now confident we can achieve, would result in a substantial, highly profitable business. However, that is a long term ambition. In the short term, we are focusing on securing and building the next three-five sites taking things one step at a time.
“We also have a number of initiatives which will help us drive more sales from our existing network by introducing new products. Last year we launched our outdoor games which have the potential to contribute meaningfully in the future and we are currently trialling Virtual Reality games at our Birmingham Resorts World site. We also started marketing to corporates in the latter part of 2019 and we believe there is an attractive market in gamification of learning and development where our skills can be leveraged.
He added: “We believe that the growth in experiential leisure is the beginning of a long-term trend which is here to stay. In future, that will provide opportunities to extend our business into the broader experiential market for immersive entertainment.”
Here is a brief insight into the Escape Hunt experience
The author was remunerated but does not hold shares in the company