Investment: Disco fever to make Northern a hot stock

NORTHERN LEISURE'S emergence as the nation's biggest discotheque performer has not impressed the stock market. Yet the group is acquiring a chain of underperforming night clubs which should dramatically improve its prospects.

Nigel Popham at stockbroker Teather & Greenwood sees profits this year doubling to pounds 28m and hitting pounds 41.5m next year. Earnings per share would increase to 12.1p this year and 16p next.

The group's pounds 150m acquisition of 37 night clubs, plus assorted late-night bars, from the struggling Rank leisure group, gives it around 5 per cent of what is still a highly fragmented market. Northern's deal puts it in top position when the ownership structure of the industry is changing. The two other big disco chains, run by Allied Leisure and First Leisure Corporation, are for sale. The Allied clubs have only recently been put on the market; FLC seems to be struggling to unload its chain, probably to management.

So Northern is swallowing Rank when its two main competitors are unlikely to be in top form, an accident of timing which should be highly beneficial to Northern. Rank's operating margins lag well behind Northern's and will no doubt be lifted to its 26 per cent. Benefits will also be achieved from increased purchasing power and reduced administration overheads.

The dancing group's ability to achieve a pounds 150m deal is a sharp illustration of how stock market fortunes change. Not so many years ago the group was on its knees, a candidate for the corporate graveyard. It was formed to buy a chain of pub-restaurants but was gazumped. It turned to a variety of leisure activities before avoiding corporate bankruptcy by concentrating on discos.

Its dancing focus, together with an upbeat management, have allowed it to grow into a pounds 200m company. The shares were about 5p in 1992; last year, when a predator hovered, they touched 300p. They are now 153.5p.

An injection of new management came earlier this year. In what was a reverse takeover and cash-raising exercise rolled into one, Northern acquired Fife, a former engineer which had become a cash shell under the direction of ex-National Express boss Adam Mills. So the takeover provided a cash infusion as well as the talents of Mr Mills and his team, who seem to get along with the experienced Northern dancing management, led by managing director Clive Preston.

Of course, Fife did not produce enough ammunition for the Rank deal. Northern is raising pounds 62.2m through a rights issue and has fixed banking loans of pounds 180m. Even after Rank's bill the group will have enough to spruce up its new clubs as well as continue its search for more venues.

The night-club business is highly competitive. And, of course, fashions change. There is talk that some of the new style all-purposes bars, which progress from morning coffee to theme bar and then to a night-club atmosphere through the day, are taking the edge off discoland.

But I am not introducing Northern into the no pain, no gain portfolio because we already embrace one disco group, Springwood. I feel two night- club chains will represent rather too much investment exposure to dancing. And Springwood has been a winner. The shares have climbed from 131.5p since I tipped them in June to 235.5. My bet is they have further to go.

It would be unwise to ditch such a rewarding performer, even for a group with Northern's undoubted talents.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea