A major recent acquisition represents a significant strategic move forward for sports agency and marketing group TLA Worldwide (TLA), but the shares look a bargain at just nine times this year's forecast earnings. In sports terms, this value opportunity looks like a slam dunk. The shares also provide an excellent route for investors interested in getting exposure to athlete representation, one of the most lucrative parts of the business of sport.
- Shares cheaply rated
- Strong recurring earnings growth
- Management track record
- Diversifying platform
- Currency headwinds
- Reliance on client performance
TLA makes the bulk of its money from long-term relationships with international sports stars, typically by charging a 5 per cent commission on client revenues. UK investors may be more familiar with the former British Olympic stars on its books - such as Sir Chris Hoy and Rebecca Adlington - but its legacy as agent to the stars of Major League Baseball means most of its clients are based in the US. These include top 10 ranked golfer Jim Furyk, American football running back Reggie Bush and baseball star Carl Crawford, whose 2015 base salary at the Los Angeles Dodgers is an eye-watering $20.5m (£14m).
In March TLA acquired the Australian and UK-focused agency Elite Sports Properties for up to $19.5m, swelling the number of athletes on its roster from 474 to 700. ESP represents cricketers and Australian rules footballers, evidence TLA is keen to diversify away from baseball and US sports, without sacrificing profit margins. The deal is expected to be earnings enhancing this year. Another positive is ESP's prominence in sports marketing, an area TLA has identified as a strategic priority, and where the company grew operating profit by 145 per cent to $3.1m in 2014. The purchase covers the title rights to a number of major upcoming tournaments, including the rugby and cricket world cups this year, and follows TLA's recent successful bid to promote the International Champions Cup football tournament in Australia for four years. This is expected to contribute to the 61 per cent increase in revenues forecast by house broker Numis Securities for this year.
A diversifying platform is encouraging, but any prospective investor who has seen the film Jerry Maguire may be nervous at backing a company reliant on the whims and fortunes of sport. Three highlights in TLA's recent full-year results provide a good counterpoint to such concerns, and further evidence that TLA Worldwide's business model is reliable. The company negotiated $194m in off-season contracts in 2014, giving good long-term revenue visibility, it increased its Major League Baseball client base by 30 per cent to 83 players, and it saw seven of its younger baseball stars move up to the majors. That suggests TLA is backing future talent, attracting existing talent and increasing revenues from its current contracts. It also explains why the company has achieved compound annual revenue and cash profits growth of 17 per cent since joining Aim in 2011.
| TLA WORLDWIDE (TLA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 43p | MARKET VALUE: | £54.4m | |
| TOUCH: | 42.5-43.5p | 12-MONTH HIGH: | 44p | LOW: 36p |
| FORWARD DIVIDEND YIELD: | 3% | FORWARD PE RATIO: | 8 | |
| NET ASSET VALUE: | 28¢* | NET DEBT: | 19% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m)** | Earnings per share (¢)** | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 15.1 | 6.0 | 4.2 | 0.6 |
| 2013 | 18.6 | 6.8 | 4.1 | 0.7 |
| 2014 | 20.8 | 8.6 | 4.8 | 0.8 |
| 2015** | 33.5 | 12.7 | 6.9 | 1.08 |
| 2016** | 37.8 | 14.1 | 7.5 | 1.28 |
| % change | +13 | +11 | +9 | +19 |
Normal market size: 3,000 Matched bargain trading Beta: 0.37 *Includes intangible assets of $41.8m, or 33¢ a share **Numis Securities forecasts, adjusted PTP and EPS forecasts £1=$1.46 | ||||
