Shares digital

Five-a-side football centre group fails to halt its slide

by Dan Coatsworth

Goals Soccer Centres,(GOAL:AIM) 228p, Stop loss 182.5p

Shares summary

An aggressive expansion plan is running out of steam as earnings growth slows and a move overseas may take time to develop. Negative sentiment will drag down the shares in the short term.

Business:

Operates five-a-side football pitches

Vital stats:

Market value: £95.5 million

Historic PE: 19.9

Prospective PE 2008: 15.4

Prospective PE 2009: 12.0

Sector PE: 12.7

1-month relative strength: -13.6%

1-year relative strength: -34.4%

Yield: 1.0%

Spread: 1.7%

Profit and sales growth is slowing at the five-a-side football centre group. Half-year results published at the start of the week (1 September) were all in positive territory and the management gave a confident outlook. The market, however, was unimpressed with the shares showing no sign of altering the negative path travelled since November 2007.

With investors concerned about consumer-facing companies and at least 18 months before judgment can be made on Goal’s first overseas projects, there could be further to fall for the shares. Cash in on the negative momentum and sell Goals Soccer Centres.

The company runs 29 centres across the UK. Around half are open long hours, from 9am until 11pm, seven days a week. The admission price of £5.50 per person is relatively cheap and it benefits from the loyalty of amateur leagues, but secondary revenue from children’s parties is slowing down where a £130 hire fee is an expensive treat in the current economic climate. At least corporate hire remains robust.

Off the bar

Pre-tax profit for the first six months increased by 20% to £3.7 million. A year ago, Goals Soccer Centres declared 47% annual growth. Sales growth is also slipping. Revenues rose 18% to £11.4 million in the first half of this year compared with 31% growth during the same period a year ago.

Three of the six new centres to open this year will have come through acquisitions, rather than organic developments. The average cost per new site so far in 2008 is £2.15 million, up from £2.1 million last year. At the time of Goals Soccer Centre’s flotation in December 2004, the firm had priced in new developments at £1.8 million each. A debt facility has been increased to £47.5 million from £40 million, giving room for more acquisitions. Interest cover at 6.4 times is quite comfortable on current net debt of £38 million, but the market will want proof that Goals is not overpaying for new sites.

The foundations have been laid for overseas expansion. Goals Soccer Centres has a 60%-owned joint venture in the US and should start to build a pilot centre in Los Angeles from June 2009. UK sites typically take 22 weeks to build. Finance director Bill Gow believes the LA site should not deviate too much from this timetable.

A franchisee agreement has been granted in South Africa with plans to open several sites in Cape Town, Durban and Johannesburg before the World Cup tournament in 2010. Gow claims several should be operational by late 2009. Until the LA and first batch of South African sites are constructed and operational for at least six months, investors will not have enough evidence Goals can export its business model successfully. This judgment may not come until late into 2010. If it does succeed then the shares will receive a positive re-rating.

On the bench

For the short term, the shares are likely to stay under pressure as investor concerns weigh down leisure sector stocks. Rival five-a-side operator Powerleague (PWR:AIM) is also depressed, having seen its share price fall by 62% between November 2007 and July 2008. Private equity group Patron took a 29% stake in Powerleague in March, using its property assets and contacts to accelerate expansion in the UK and abroad. The deal, which saw Patron pick up stock from directors rather than the market, annoyed institutional investors as they were not given the chance to offer their shares for tender.

The decline in Goals’ share price has eliminated its premium rating. Although it has over 40 potential sites in the pipeline, only a strong run of securing these sites will provide the much-needed catalyst to revive the stock. Longer term, it should have a stronger run if it can crack the overseas market. Stockbroker Altium has downgraded its pre-tax profit forecast by 5.4% to £8.7 million for 2008 and by 7% to £10.5 million for 2009.