Derek Pain: Goals is getting a kicking but it deserves better

No Pain, No Gain
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The Independent Online

Just how much the stock market has changed since the banking crisis erupted in 2007 is illustrated by one of its minor players, a company called Goals Soccer Centres, running five-a-side football establishments.

I realise many will point out that a relatively obscure business cannot be regarded as indicative of the overall picture, yet the likely full-time result of Goals' eight-year long Aim game seems to me to sum up the treatment of many small caps since the financial picture changed so dramatically.

The company has accepted a £73.1m takeover bid from the Ontario Teachers' Pension Plan, a fund that seems quite keen on the British way of life. The deal should be all over bar the shouting as the Canadians have the support of their target's board and the only declared rival, Patron Sports, has dropped out of the running.

Intriguingly, the offer prices Goals shares at 144p a pop. Yet in 2005, the no pain, no gain portfolio descended on the stock, paying 125.5p. The price subsequently topped 400p with the portfolio bailing out, as the banking disasters were eroding sentiment, at 300p in early 2008, netting a near-£7,000 profit. I doubt if long-term shareholders will, therefore, welcome the takeover terms.

Goals is now a far more developed and much stronger business than it was when the portfolio was involved. True, profits have not grown as much as expected, primarily because it has invested in expanding its centres. When the portfolio arrived it had around a dozen. Today it has 43 and has moved overseas. The appearance of the Canadians has been accompanied by comments they intend to spend £40m, adding 25 more centres. But such ambitions do nothing to justify the fall in the value of Goals shares.

Before the banking fiasco, investors loved small caps, particularly any with a strong game plan, good management and plenty of ambition. Nowadays they are inclined to regard tiddlers as too risky and favour blue chips.

The fate of Goals is mirrored by many other small caps. From the portfolio I can cite a number of former constituents that, through no fault of their own, are out of touch with their peaks. The performance of the blue-chip Footsie index supports the view that top-of-the-range stocks have recovered much of the ground lost in the banking meltdown. The Aim index offers a far less comforting picture.

I am growing increasingly worried about the shares of Hargreaves Services, the coal mining to transport group which can claim to be the portfolio's longest-serving member. Three Saturdays ago I threatened to drop them should the price fall below 700p. Well, last week Hargreaves' future in the portfolio looked pretty precarious as the shares hit 700p. I don't think they actually went below that crucial level, so the group survives, but with the shares, as I write, at 728.5p there is not much leeway.

A Hargreaves departure would be sad. After all, until it encountered problems at its Maltby coalmine in Yorkshire, the group had not put a foot wrong. The shares were recruited at 417p in 2007 and quickly caught investor attention as one of the few small caps to thrive in the wake of the financial disasters. Earlier this year the shares were above 1,200p and analysts were predicting they would roll on to 1,500p.

Hargreaves is a well-run operation and will get over the profits setback created by Maltby. But it may take the stock market a long time to forgive and forget. Yet the one-off misdemeanour will not have a great impact on profits.

Still, it is worth remembering that occasionally a spectacular comeback is achieved.

Perhaps Hargreaves should take comfort from Stagecoach. The transport group, which once graced the portfolio, fell to a mere 10p earlier this century. The portfolio paid 80p and was forced to grit its teeth as losses mounted. But Stagecoach made a strong recovery and the portfolio sold at a handsome profit. The shares are now 285p – and the price makes no allowance for some hefty capital returns to shareholders.

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