A Look At Dave And Busters One Month After Going Public
Dave and Busters underwent a successful IPO in the middle of October and is trading 23 percent higher than the stock opened.
The analyst quiet period was lifted last week and Raymond James, Piper Jaffray, Stifel Nicolaus, William Blair and Jefferies started coverage on the stock with a buy rating (or equivalent). The consensus price target is $24, 12.7 percent higher than shares finished last week. Investors should be aware that all five firms were involved with the offering.
With 52 percent of its revenue from arcade games and 48 percent from food and beverages, Dave and Busters is unlike any other publicly traded company. Chuck E Cheese had the most similar business model, however it is no longer publicly traded following acquisition by Apollo Global Management at the beginning of the year.
Apollo acquired Chuck E Cheese (also known as CEC Entertainment) for a $1.3 billion enterprise value. Trailing twelve months EV/EBITDA was 7.69 and EV/sales was 1.58. Applying these values to Dave and Busters gives an average enterprise value of $944.7 million. Pulling out debt gives an equity value of $419.7 million.
This estimate, based on Chuck E Cheese multiples, is just half of Dave and Busters’ $832.6 million market cap. However, growth prospects for the two companies are significantly different. While Chuck E Cheese’s growth has been flat for several years, Dave and Busters recently announced 15.9 percent first quarter sales growth generating 17.9 percent EBITDA growth.
CEO Steven King recently commented, “we believe that we can own and operate in excess of 200 stores in North America, which is approximately three times our current store base." The company is on track to open seven or eight new locations in 2014 following five openings in 2013.
With sufficient capital from its IPO, Dave and Busters has the ability to realize this growth. If the company were able to operate 200 North American locations, Chuck E Cheese’s buyout multiple would price the stock much higher than its current value.