My interest in the beautiful game is more financial at the moment, and with this in mind I noted an announcement from five-a-side football pitches operator Goals Soccer Centres which has been in bid talks with the Ontario Teachers' Pension Plan since early April. What piqued my attention was the fact that the Takeover Panel has told the Canadian Pension Fund, one of the country's largest institutional investors, it has until the close of business on Monday 11 June to announce a firm intention to make a bid for the company. It's a classic 'put up or shut up' deadline and one that in my view will prompt the bidder to stump up the cash to take Goals Soccer Centres private.
In fact, having run through the numbers in detail, I am convinced this is exactly the type of deal Ontario Teachers' Pension Plan will want to close. It certainly ticks all the right boxes as Goals Soccer Centres is a highly cash-generative, asset-backed business and one with a dominant market position, controlling 42 per cent of the UK branded five-a-side football market. The company has a strong growth profile, too, boosting no fewer than 40 sites in its pipeline to add to the 43 it currently operates from.
Those sites are in the books for £110m and have been funded by £53.6m of bank debt but, more importantly, the cash generation of these soccer centres is mightily impressive as they produced £13m of operating cash flow and cash profits of £13.8m in 2011. That represented a 12 per cent profit uplift on the prior year, a trend that shows no sign of slowing, according to analyst Paul Hickman of broker Peel Hunt. In fact, he is forecasting cash profits of £15.2m in 2012, rising to £16.1m in 2013. Or, to put this into perspective, if the company stopped opening new centres tomorrow it could return cash back to shareholders equivalent to 40 per cent of its market value over the next three years just through cash generation alone. This will not have been lost on the Canadian suitor who is clearly having a close look at the books and will also be working on a take-out price acceptable to shareholders. Having done the same exercise myself, I firmly believe that the chances of a bid now materialising are heavily odds-on.
That's because, with the shares being offered in the market at 132p, the company only has a market value of £63m which is a modest premium to its December 2011 book value of £52m. To put it another way, if Ontario Teachers' Pension Plan picked up Goals Soccer Centre at this price and paid off the company's debt then for a bargain £117m it is getting hold of a business for less than eight times this year's expected cash profits and a miserly seven times 2013 forecast cash profits.
That would indeed be a bargain, but one that in my view will not tempt Goals Soccer Centres' shareholders to part with their paper. What probably would tempt them is an offer of between 155p and 160p a share, a 20 per cent premium to the current market price. At the bottom of that range, the company's equity would be valued at £76.8m and once you factor in debt the total take-out price would be £129m. This equates to just under 10 times last year's cash profits and 8.6 times forecasts for 2012. Obviously, the 10 largest shareholders who control an aggregate of over 57 per cent of the shares in issue will have to play ball, but from my lens an offer in the 155p to 160p range would be a fair valuation.
Clearly, the prospect of making a potential 20 per cent profit in these volatile markets is an attractive proposition and one that could be realised in pretty short order given the time frame outlined above for the Takeover Panel's deadline. However, it's worth pointing out the risks as there is no guarantee of a bid materialising and even if it does then it could be a low ball offer. That said, the investment case still stacks up without factoring in a bid premium as shares in Goal Soccer Centres are priced on only 10 times last year's basic earnings, offer a dividend yield of 1.7 per cent and trade on a modest 1.2 times net asset value.
Moreover, a trading statement late last month confirmed the positive start to the current financial year - total sales were 6 per cent ahead in the first eight weeks. So, on a risk-reward basis, I see more upside than downside at this level and view the shares as a trading buy on an offer price of 132p ahead of the bid deadline on 11 June.
■ There are some pretty compelling investment opportunities around right now and to help readers capitalise on them Investors Chronicle is hosting an investors seminar in London on Monday 18 June. On the day there will be valuable presentations from our own Trader Dominic Picarda and I will be giving an investment Masterclass including some potentially very profitable share tips. There will also be informative seminars from Stanley Gibbons, the biggest name in stamps, and listed products provider Societe Generale. Tickets cost £25 each and can be reserved by booking online at www.icroadshow.co.uk.
