The Brighton Pier Group (PIER.L)

Insider-owned nano cap that owns the famous Brighton Palace Pier in England trading for less than 3 times normalised earnings and ~64% below its Sum of the Parts value.

1. Key Facts

Description: Brighton Pier Group (PIER.L) is a holding company operating the famous Brighton Palace Pier on the south coast of England. The pier is a well-known tourist attraction in the centre of Brighton, which is a tourist hip hotspot. The company also operates 8 mini-golf courses and 8 premium bars throughout England. It recently acquired Lightwater Valley Park in North England as a part of its strategy as a consolidator in the industry. All of the operations are in the UK and the company is  headquartered in London. It was founded in 2016 and acquired the pier in 2016.

Track record: Over the last 10 years Brighton Pier compounded revenue at 12.4% CAGR (17% over the last 5 years) and its EPS at a CAGR of 37% over the last 10 and 35.8% over the last 5 years. It has done so primarily through organic growth and more recently it’s trying to grow both organically and through acquisitions. It has historically operated on low to moderate debt levels, but Covid forced it to issue more. The management is currently paying down and restructuring the debt. At the same time it has substantially improved its gross margin from 78.9% in 2013 to 86.2% now. 

Market cap: Its market cap as of the 6th of September 2023 is £14.6 million ($17.9 million). The price came down from the recent top of £1.08 in May 2022 (£0.39 today). It is also ~11.4% up from its 52-week low.

Valuation: PIER.L trades at a TTM P/E of 2.44x (5-year average of 4.5x) and 63.5% below its Sum of the Parts Value (valuing one of its segments at nil) based on normalised pre-covid earnings. 

2. Business Overview

Background 

The Brighton Pier Group is an entertainment holding company that owns the famous Brighton Palace Pier, which is also its main source of revenue. Other holdings include 8 bars, 8 indoor mini golf courses, and the Lightwater Valley theme park in North England. As such the group is divided into 4 segments: Brighton Palace Pier, Golf division, Bars divisions, and Lightwater Valley Attractions. Let’s start with Brighton Palace Pier as it’s the key to this business and my thesis.

But first about Brighton..

The pier is located in the city centre of Brighton right at Brighton’s main beach. Brighton is a seaside resort city on the south coast of England and a well-known tourist hotspot. It’s famous for its progressive culture and known as the most LGBTQ+ friendly city in England. It consistently tops all the rankings for attractiveness, culture, inclusivity, foreign investments, and sustainability. It’s renowned for diverse communities and is full of beaches, music and art festivals, shopping areas and resorts. It was also named the “unofficial gay capital of the UK”, “the hippest city”, and “the happiest place to live in the UK''. According to a 2021 census, 10.7% of the population of Brighton aged over 18 identifies as gay, lesbian, or bisexual. Due to its uniqueness and undeniable attractiveness the city has become one of the most popular places in the UK.

(Streets of Brighton)

Brighton Palace Pier

This is the main segment of the company and its namesake accounting for 43% of the revenue in FY 2022. Brighton Palace Pier is a Grade 2 listed pleasure pier (the second highest rating for UK landmarks). Now that you have a rough idea of how unique and popular Brighton is you have to understand that Brighton Palace Pier is the only pier in Brighton and the only amusement park in the city. It’s also located in the centre right at the main Brighton beach area. 

The pier, despite its old school style (more on that later), is still very popular with 4.9 million visitors in 2019, which makes it the most visited free attraction in the UK outside of London. This number of visitors has grown from 4.65 million in 2017. The visit count was disrupted by the pandemic but 2022/2023 has seen a substantial recovery as we will see in the financial numbers below, however the visitor count in the pandemic 2021 was still 4.2 million (something that’s only going to improve). I also visited the pier myself in May 2023 and Brighton was as crowded as pre-pandemic (parades everywhere) and the pier was full of tourists and locals.

It’s 525 metres long (1,722 feet) and is packed with various attractions, restaurants, food stands, roller coasters, arcades, and casinos. The pier itself is free to enter so you do not pay any sentence fee or ticket. The company owns the pier and all the attractions built on it and that’s how it makes its money. You can technically enter the pier and spend £0, but in practice that’s close to impossible.

There are 2 main arcade halls with a combined of 300+ machines: The Palace of Fun and the Dome Arcade. After you pass the first section with food stands with snacks, sweets, popcorn, crepes, etc, you enter the Place of Fun. It has all the classic gambling and arcades from the 2p pushers all the way to the modern simulators. Later you pass through the first gift shop, restaurant and bar sections, even more snack and sweets stands, and finally enter the main funfair area. It has the Dome Arcade with even more machines than the Palace of Fun, the main bar and restaurant, and most importantly, the 18 funfair rides (roller coasters, carousels, horror houses etc). 

The pier targets families with children. Parents sit down in bars and restaurants and the children can jump on the rides and carousels. The arcades have the same design with more children-friendly zones and simulators and the gambling section for adults. The main goal of the pier is to attract families from all over England who come to stay in Brighton in the first place and get them to stay there for half a day or so. The longer they stay the more money they’ll spend and the pier has enough facilities and attractions to allow for that to work. Simplified map of the pier: https://www.brightonpier.co.uk/application/themes/layout/images/map2.jpg.

(Brighton Palace Pier)

The pier division has seen a substantial growth in revenue during the last few years. It stood at £25.3 million in FY 2022 and £9.6 million in FY 2021. The LFL sales vs FY 2019 (last pre-covid period) were 11% whilst the gross margin stayed in the consistent range (85% vs 86% in FY 2021). 

Golf Division