MIDAS STOCK TIPS UPDATE: We invested 200p in the sun loungers, they are now 281p and could rise further

Two years ago, encouraged by the late Queen’s Jubilee, Midas gave a little-known cafe and bar business called Loungers 200p shares.

Despite its name, the company has been anything but lax since then, opening another 30 sites and posting record results that have pushed its share price up to around £3.

It’s enough to whet the appetite, but potential investors need to understand the company’s prospects before deciding whether to jump in, keep waiting or call in last orders, so here’s an explanation of what’s made the business so successful and why it’s bucked the trend in a lackluster casual dining market.

If you’ve never been to one of Loungers’ properties, it’s perhaps best to imagine them as a cross between a Wetherspoons and a hipster cafe.

The decor is deliberately quirky (think tasseled lampshades, images of whiskered cats and mismatched chairs), but menus are standardized across the company’s properties and prices are kept relatively low.

The company does well in secondary and suburban locations, meaning you won’t find its bars (known as Lounges, Cosy Clubs or Brightsides) on London’s Oxford Street or Edinburgh’s Royal Mile, but in Sidcup and Didcot, where there is less competition and rents are not as high.

Leasing accounts for just over four per cent of sales, thanks to the company’s shrewd positioning. Unlike the ubiquitous Costas and Caffe Nero’s, the lounges are open all day, from breakfast in the morning to cocktails and tapas in the evening. They cater to a huge clientele and, in some of these secondary areas, have little competition for the early morning or evening trade.

This month’s annual figures show that brunch lovers and night owls alike have drawn Loungers to their hearts.

Comparable sales rose five percent and revenue increased nearly 25 percent.

Chief executive Nick Collins, more accountant than slacker, says an improving macroeconomic environment with (hopefully) lower interest rates and inflation should help the company further, although he says a review of the business rates system by the Government would strengthen its position.

It is encouraging that the group is making money at all times of the day, rather than gains being concentrated in the morning or afternoon, indicating that the strategy is working.

Listed in: Main market Heart: LGRS Contact: contact@loungers.co 011 7930 9971

Midas Verdict: In a tough market, Loungers is an anomaly. But as an investor, rather than a diner, you need to know that its stock is as mouthwatering as whipped feta, and that makes it harder to predict. Broker Peel Hunt has a 375p price target on the stock, which was at 281p this week, but that looks ambitious. The recent collapse of London pub chain Antic shows the perils of this sector. Devotees who bought in 2022 are sitting on a profit – it may be worth taking some of that.