Investors are hoping leisure entrepreneur Luke Johnson will be able to revive the fortunes of beleaguered student bar operator Eclectic Bar (BAR:AIM), with his appointment as chairman sending the shares up 31% to 63.5p.
Johnson intends to buy 3 million shares in Eclectic which, together with further subscriptions by the group’s chief executive officer and chief financial officer, will raise £1.65 million for the company and help accelerate its growth plans.
Non-executive chairman Jim Fallon says Johnson will ‘help drive the business in the next stage of its development’ and highlights his vast experience in the leisure sector. Johnson was the former chairman of Pizza Express, Strada and Giraffe and is the current chairman of Patisserie (CAKE:AIM).
While Johnson clearly has belief in the £6.2 million cap’s prospects we think a turnaround is a long way off, particularly as this morning’s trading update says trading remains tough and is likely to impact on full year results.
The group is currently implementing a cost reduction programme ‘due to the pressure on sales and profitability’. It has sold its underperforming Lola Lo bar in Norwich and the opening of two new sites in Sheffield and Liverpool is likely to be delayed.
The big problem facing the group is its core student market is drinking less and studying more. This is unlikely to change in a hurry and we think Eclectic will need a complete change of direction in order to reverse its fortunes.
Eclectic made a loss before tax of £0.52 million in the half year to 28 December, which led Panmure Gordon to reduce its target price from 180p to 102p.