Patisserie Holdings and Hollywood Bowl

“The FTSE 100 is back in negative territory once again, with miners and engineers among those worst hit. Also struggling is the packaging sector which has experienced a big sell-off in recent weeks, despite it being an industry with structural growth thanks to the rise of e-commerce and the need for lots of packaging to send out goods. “Markets also fell across Europe on Wednesday morning, although Asia fared better with modest gains in places like Hong Kong and Bombay,” says Russ Mould, Investment Director at AJ Bell.

Patisserie Holdings

“Cake shop owner Patisserie Holdings has shocked the market with news of accounting irregularities, leading to its shares being suspended.

“At the moment there isn’t enough detail to find out exactly what’s happened although the fact the company says the matter may potentially be fraudulent doesn’t bode well for its shareholders.

“Patisserie had, until now, always been seen as a well-run, successful business with growth in profits and dividends. In May it reported a £28.8m net cash position and executive chairman Luke Johnson said the business had ‘a strong balance sheet’. Now the business says the accounting issue has ‘significantly impacted’ its cash position.

“Sometimes it is easy to spot dubious accounting methods in a company’s financial results, other times you have no clue. Investors trust a company to be open and honest with its reporting as the publication of financial results and trading updates are often the only insight they have into how a business is performing.

“While it is too early to jump to conclusions with Patisserie, this latest episode is incredibly damaging for investor sentiment towards corporate reporting transparency in general. Recent financial errors at drinks distributor Conviviality (which led to its demise) are still ingrained in investors’ memories, so too accounting hiccups at supermarket Tesco and telecoms group BT.”

Hollywood Bowl

“The market leader in the tenpin bowling space, Hollywood Bowl, continues to impress as it marks two years as a public company.

“Today’s trading update reveals robust growth in profit and unlike other consumer-facing firms there is, refreshingly, no attempt to attribute the comparatively modest revenue growth to factors such as the weather or this summer’s football World Cup.

“Instead management have just got on with it, keeping tight control on costs and continuing their judicious roll-out of new venues.

“The company operates a dynamic pricing model, has invested in its sites so they are attractive to prospective bowlers and uses a sensible approach of testing revenue-boosting initiatives carefully before rolling them out across its portfolio.

“Always a good sign, the company is also throwing off plenty of cash, so much in fact that it is considering returning some of this money to shareholders – just like it did a year ago via a special dividend.

“Brexit looms on the horizon as it does for other consumer businesses but there is reason to believe that like the cinema, which tends to weather downturns as it is seen as an affordable treat, the company’s superior bowling offer might do the same.”

These articles are for information purposes only and are not a personal recommendation or advice.