Investors Will Want XP Factory's (LON:XPF) Growth In ROCE To Persist

As an investor, you're always on the lookout for companies that can consistently deliver strong returns on capital employed (ROCE). One such company that has caught our attention is XP Factory (LON:XPF), a leading experiential leisure business operating the Escape Hunt and Boom Battle Bar brands. In this article, we'll explore why investors will want XP Factory's growth in ROCE to persist and how the company's strategic initiatives are driving this performance.



XP Factory's ROCE has been on an upward trajectory, with the company reporting a ROCE of 3.13% for the year ended 31 March 2024. This growth in ROCE can be attributed to several strategic initiatives implemented by the company, which have driven its financial performance.

1. Expansion and Acquisitions: XP Factory has expanded its footprint by opening new sites and acquiring existing ones. In the period discussed, the company acquired three Boom Battle Bar sites (Aldgate, Wandsworth, and Bournemouth) from its franchise network. This expansion strategy has contributed to the company's revenue growth and increased its customer base, thereby driving ROCE.
2. Organic Growth: The company has focused on organic growth by improving operational efficiencies and sustaining sales growth. This is evident in the strong like-for-like sales growth experienced by both Escape Hunt (38% increase) and Boom Battle Bar (200% growth) during the 12 months ended 31 December 2023. This organic growth has contributed to the company's overall ROCE.
3. Diversification: XP Factory has diversified its customer base by targeting different age groups and occasions. This diversification strategy has helped the company maintain and accelerate its growth in ROCE by ensuring a steady stream of customers and reducing the impact of seasonality.
4. Strategic Pricing: The company has held pricing relatively flat for consumers during turbulent times, offering consistent value while maintaining high service standards. This strategic pricing approach has helped XP Factory maintain its competitive advantage and drive long-term value for shareholders.
5. Restructuring the Balance Sheet: XP Factory has worked on restructuring its balance sheet to improve its financial position. This includes securing a £10 million credit facility with Barclays to support its growth ambitions for Boom Battle Bar and Escape Hunt. This restructuring has helped the company improve its ROCE by providing it with the necessary financial resources to invest in growth opportunities.



These strategic initiatives have been effective in driving long-term value for shareholders, as evidenced by the company's impressive financial performance. XP Factory's revenue doubled to £45 million, with gross profit and EBITDA also doubling, and an operating profit of £1.8 million for the first time. The company's ROCE has improved as a result of these initiatives, demonstrating the effectiveness of its growth strategy.

In conclusion, investors will want XP Factory's growth in ROCE to persist, as the company's strategic initiatives have driven strong financial performance and created long-term value for shareholders. By continuing to focus on expansion, organic growth, diversification, strategic pricing, and balance sheet restructuring, XP Factory is well-positioned to maintain and accelerate its growth in ROCE. As an investor, keeping an eye on XP Factory's progress and considering its shares as a potential addition to your portfolio could be a wise move.