Bottom Line: Discos stop slipping

INVESTORS in First Leisure, a model of caution and predictability in an exuberant industry, could be in for more interesting times.

News of diversification into the health and fitness market, coupled with the recent move into bingo - neither could be described as untried leisure formulae - will accelerate the company's site opening programme.

This is good news, not least because the new ventures will help to fill the gap created by the maturing of First Leisure's ten-pin bowling operations. Ten-pin bowling has clearly peaked. The pending trial of a new computer game venture with Sega in Reading shows that the company is aware of the need to address the problem.

Another problem is Blackpool where the public has stayed away because of worries over pollution. The dirty beach issue, though, is being resolved and the Blackpool Tower, which First Leisure owns, should have a happy centenary year.

Disco operations, the first in the company to suffer from the recession, were the success story of the year. Total attendances exceeded 6.2 million - a level not seen since the peak years in the late Eighties.

With the key 21- to 26-year-old disco-goers displaying more confidence, it cannot be too long before the company can abandon its policy of swapping profit margin for volume and start pushing through price increases.

Rises in spend per head feed directly through to the bottom line. A tiny 25p increase per person, for example, would add pounds 1.5m to profits.

Yesterday' 5p fall to 291p in First Leisure's share price owed more to a lack of awareness in the stock market of the effects on earnings per share of a rising tax charge than the company's future prospects, which are good.

Profits growth this year could be about 21 per cent to pounds 38.5m, a sharp improvement over the 2.3 per cent advance to pounds 31.8m last year. The shares deserve to trade on a higher p/e of 17, and should be bought.