GOAL – my thoughts

Paul Scott wrote about GOAL, the footie pitches company, this morning (https://is.gd/0d7iCD), expressing the view:

So I could see this share having a reasonable run upwards over the next year. It could have maybe 20-50% upside in it, who knows? I’m just not convinced that the basic business model is any good, longer term. The company has mentioned before that competition from local authority funded sites is problematic. Overall then, it looks more a shorter term trade, with potential upside from more positive market sentiment. Rather than a good long-term proposition.

Today it announced a placing to refurbish its sites, create a US pilot site, and deleverage. The markets reacted well to this news, and the shares are up 5.3% to 109p as I write.

I had expressed the view back in November 2015 (https://is.gd/JJpNxx) that the company earned mediocre returns on capital, and the debt levels were too high.

Sure enough, we have a placing. Average ROCE figures have deteriorated since my last post, and is now 5.7%. But wait, it gets worse … the fact that the company needs to upgrade their existing sites means that they must have been undermaintaining them, so the “true” ROCE is probably lower. Their expansion into the US will, I assume, further undermine the ROCE, and it remains to be seen if the company can make the US market work. Historically, UK companies expanding into the US often have unhappy endings. Even Marks & Spencers could not crack it.

So I am in complete agreement with Paul that the basic business model is not particularly good, and I would not want to hold it for the long term. Short term, anything can happen of course.

Personally, I have been increasing my holdings with a longer-term horizon. The kind of companies I am looking for have doubled their dividends over the last decade, are not in the Footsie, have a dividend yield of at least 2.5%, a ROCE of around 15%, and have debt less than 3X PBT (preferrably net cash). I dare say that some of them will be complete disasters, but with sufficient diversification and patience, there should be some excellent winners.

109p

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About mcturra2000

Computer programmer living in Scotland.
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