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Management related newsflow from Goals this morning. The vacant CEO role has been filled with appointment of Andrew Anson who joins from 23rd April. This news removes an area of uncertainty and should be welcomed. He has a good track record with various consumer facing businesses, most notably at Kitbag (ex Findel business) where from 2011 he led a successful recovery in profits and eventual sale to Fanatics Inc. With most of the strategic heavy lifting done at Goals, he has the platform to execute a return to profitable growth and an improving ROCE profile of the business. Separately, the architect of the turnaround strategy announced c.18 months ago, Nick Basing, is handing over the role of Chairman to focus on being Chairman of the Group’s JV in the USA with City Football Group. Nick in our view has done an excellent job in laying the foundations for the Group to reverse a long period of underperformance. We are pleased he is staying on the Board as a Non-Executive Director whilst simultaneously working to extract value out of the US JV. The PLC Chairman role is being passed onto Michael Bolingbroke (SID) until a new Non-Exec Chairman is appointed. Whilst there are green-shoots of a turnaround emerging at Goals we want to have more confidence in the direction of forecast before turning more positive. We have a Hold recommendation but see today’s CEO appointment as a positive development.
Goals Soccer Centres
Today’s update highlights that whilst 2017 was a year of significant strategic progress, the turnaround is taking longer than expected. Investors should take plenty of encouragement from the LFL metrics from the invested estate, but there remain a significant tail in the business which is underperforming. Management has a clear plan to address this part of the business in FY18 but for FY17 the financial performance has not lived up to expectations, with LFL sales of -0.5% vs our +2%. Accordingly we lower our FY17 PBT forecast by 13% and FY18/FY19 by 13%/7% respectively. There is an expectation that the turnaround will show better momentum in 2018. Turnaround stories rarely go in a linear line and Goals is proving this, but fundamentally we feel it now has the correct strategy to rebuild shareholder value. Failure to do so will once again raise balance sheet concerns given FY17 finished with only 3% covenant headroom and for FY18 we are projecting 20% headroom. For now until forecast confidence returns we stay at Hold with a revised price-target of 70p (from 90p).
News this morning of the CEO Mark Jones resigning is both surprising and disappointing. He’s been at the helm for a relatively short-period of 13 months and critical to the investment led turnaround strategy. This admittedly has had mixed success to date but his planned departure will no doubt lead to a period of uncertainty. He has decided to go back into the private sector but will stay with Goals until a successor is found. Today’s news coming on the back of a mixed set of interims last month (prompting further downgrades of c.20%) and an increasingly cautious outlook for UK consumer, will only further weaken investor sentiment. On a 2-3 month view it is imperative the Board finds a strong and suitable replacement quickly and the company hits this years forecasts. The shares are down 11% YTD and trade on a FY17 P/E of 12.1x falling to 10.9x for FY18. We expect some downside pressure on the stock today. Ultimately an end-game involving a 3rd party taking the company private remains a distinct possibility given a sustained period of disappointments endured by long suffering shareholders.
We have completed another refresh of the value style screen, first established as of 12 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 9 stocks to focus on. Since the last refresh as of 8 November 2016, the day before the US presidential election result was known, the screen has performed strongly (outperforming the small-cap index by 12.9pp on a weighted basis) with our focus stocks doing even better. The indication is that smaller value stocks perform well in a steady “risk on” environment. The new basket contains many UK consumer demand and emerging market plays. We find the latter exposure interesting at this juncture.
GOAL VTU BILN INL AEP MAYA IPF TIME RAV
Goals Soccer Centres PLC (Goals) is an operator of small sided football (“SSF”) clubs across the UK, established in 2000. Goals now operates 46 FA affiliated clubs across the United Kingdom, two clubs in the USA (Los Angeles) and employs over 700 people.
We have completed another periodic refresh of our value style screen, first established in our note of 26 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 9 stocks to focus on. Since inception last year the screen has marginally outperformed the main small-cap index by 1pp and underperformed the micro-cap index by about 3pp. The EU referendum result arose in the latest period and resulted in significant short-term underperformance, which has not been recovered. The new basket was struck before the US election result.
GOAL BOOT VTU TEF LVD BILN CARR RAV
New management in unveiling its strategic review is transitioning the investment case from a roll out investment thesis to unlocking value of the existing asset base. We have reviewed the proposed operational and strategic plans and feel there is now the basis of a more credible recovery story, which if successfully executed should lead to a major reassessment of Goals. An added attraction is the significant balance sheet deleverage forecasted over the next 3 years, which should support a higher equity value. Whilst the accompanying fund raise leads us to cut EPS forecasts by 11%-21%, we reinstate our Buy with a TP of 150p (FY17 P/E of 15x and 10x EV/EBITDA).
Our initial reaction to the strategic review and the accompanying fund raise of £16.75m is that neither are as radical as they could have been. Most of the pend will be geared to improving existing facilities in order to recapture lost market share and making the product more premium. Given key competitor Powerleague has announced similar plans and wider competition is intense, we question whether the actions outlined will be enough to deliver sustainable UK growth or just stabilise the business. Until we speak to management and get a much deeper handle on the strategic review and financial implications, we move from Buy to Hold.
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GOAL FSJ SGM OXB
Today’s AGM is s mixed bag. Trading commentary remains disappointing but there is positive news around new NED appointments. It seems we will have to be patient for a short while longer re the promised strategic review outcome and formal appointment of a new CEO. Both features seem imminent. We continue to hold off adjusting forecasts until the strategic review is published and the anticipated equity raise to support the new management team’s plans to resurrect the business.
FY15 finals are broadly in line with our significantly reduced expectations and as feared, contain an asset impairment exercise (£14.5m – non-cash). Judging by the tenor of the results the new Executive Chairman and new CEO (still to be finalised) have an enormous challenge to revive a flagging UK business. This is evidenced by a clear admission that the UK business is under-invested and with much increased competition. Given a stretched BS, we would not rule out another equity raise to back the new management’s strategic review, which we understand is likely to be unveiled at the AGM stage on 5th May. Current trading would suggest a degree of LFL stability rather than a good recovery. We are unlikely to make any material forecast changes post today’s finals and maintain a Buy in the belief that the new team can unlock shareholder value.
Goals Soccer Centres (GOAL LN) FY15 finals in line and LFL’s stabilised. All eyes now on strategic review | Raven Russia Ltd (RUS LN) Resilient in Russia
Goals Soccer Centres Raven Property Group Limited
We are upgrading back from Hold to Buy following recent price weakness on general market sell-off. Whist we have ongoing concerns about the UK business and leverage, the investment case is quite compelling given management changes being engineered to unlock shareholder value. In the meantime our cautiously pitched forecasts have real scope to be beaten, not least given very soft 2015 LFL comps of -7%. To this end, we anticipate more reassuring trading news at the 14th March finals.
Goals has issued an in line YE trading update which will come as relief to the market. The other key news is that a new CEO is being sought, as a fresh pair of eyes is needed to revive a flagging UK business and to rebuild shareholder value. We are somewhat circumspect to what extent the UK business can grow meaningfully and feel FY16 could prove to be another mixed/tough year. We use today’s trading update to formally publish our 3 year forecasts post the recent profit warning, and after a good 15% share price run over Dec’15, move back from Buy to a Hold.
We view the entry of Sports Direct onto the share register as an interesting new development in the Goals Soccer saga. At this stage it is difficult to second guess what Sports Directs end game is, but an active corporate role be it through a collaborative tie-up or a full corporate move cannot be ruled out. Our Sell stance has served us well, but post this morning’s news we upgrade to Buy with a revised TP of 150p.
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GOAL HFD OXB 94A
A profit warning from Goals this morning with double-digit downgrades anticipated for the next 2 years. For various reasons trading over the critical autumn months has failed to pick up, and whilst the position in Novembers is relatively better, we feel this partially reflects a softer LFL comp. Today’s warning also put’s pressure on the balance-sheet from a covenant perspective. Fundamentally we are increasingly coming to the view that the UK business is ex-growth and stay at Sell with a revised TP of 120p from 160p.
Today’s interims raise fresh concerns about UK growth prospects and have put further pressure on the investment case and the management. US remains a notable bright spot but a mid-term story. Various factors drive 15%-23% EPS downgrades over FY15- 17. We set 160p as our new 12m TP and on this basis move from Hold to Sell.
Entertainment One (ETO.L): Q1 update | Goals Soccer Centres plc (GOAL.L): INTERIMS
Today’s H1 trading update is a mixed bag. There are good pointers around strategic momentum (excellent US LFL’s and new site progress), but this is somewhat overshadowed by a disappointing UK performance with Q2 not being sufficiently strong to offset a weak Q1. This has prompted meaningful EPS downgrades of 6-11% over FY15-17. Given this year had been billed as the start of a recovery phase, the downgrades will clearly hurt investor sentiment. However, owing to a couple of adverse dynamics at play in the period, we feel it would be hasty to rubbish the recovery thesis and feel that the next 6 months will give a much better understanding. In the event improved LFL’s are not evidenced then the maturity and prospects of the UK business can be validly questioned. To reflect the downgrades and needing to see tangible evidence of sustained LFL improvements, we downgrade from Buy to Hold with a revised TP of 209p.
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GOAL NCC SPT JD/ SMMT
At its H1 post-close update next week Goals needs to reassure on LFL trading momentum and the site pipeline. We expect it to do so. We think the company is on an undemanding valuation for a Consumer / Leisure stock at this stage of the economic cycle and confidence in growth being resurrected will be well received. In the event growth is not evidenced, we would not rule out either shareholder instigated change or a corporate approach as real possibilities on a 12 month view. On this basis the downside is limited. We maintain our Buy with a 260p TP.
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