Loungers (LGRS:AIM) 194.4p

Loss to date: 30%

We originally said to buy all-day café operator Loungers (LGRS:AIM) at 278.5p on 23 December 2021 as an attractive growth story, and one where its proposition fitted nicely with the rise of hybrid working where people would spend more time in their local community.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

The shares have suffered from the broader sell-off in equities and concerns about a slowdown in consumer spending.

However, trading has been good this year, with Loungers saying in October that it had significantly outperformed the market over the previous six months.

It now intends to launch a new roadside restaurant brand situated mainly on A-roads. Called Brightside, it will be an attempt to bring back ‘genuine’ hospitality to a sector which has been dominated in recent years by drive-thru and quick service restaurants.

Chairman Alex Reilly commented: ‘Brightside will have a contemporary, welcoming, and warm feel, whilst also evoking nostalgia for a time when motoring in the UK was a more exciting experience.’

The roadside hospitality industry is often associated with the Little Chef chain, which launched in the 1950s, hit its peak in the 1980s but then struggled. Efforts to reboot the brand via TV chef Heston Blumenthal weren’t successful.

Analysts at Shore Capital say Brightside could position Loungers well in the context of increased electric car ownership which typically takes 15 to 20 minutes to charge rather than refuelling which requires less than three minutes.

They also see merit in these types of drivers trading up to a full-service, higher quality food and drink proposition when having a break on a journey given electric cars tend to be driven by more affluent customers.

WHAT SHOULD INVESTORS DO NEXT?

Loungers will face competition from growth in drive-thru outlets from the likes of Greggs, Costa and Starbucks, but the Brightside concept is arguably a different experience.

It has a good track record of developing leisure outlets that do well, and we think Brightside could be good if the set-up costs aren’t high and that it can find good locations on attractive financial terms. Keep buying the shares.

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