Shares: Invest in haste, recoup at leisure: Many companies are well placed to benefit from other people's free time

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The Independent Online
A NEW breed of leisure company share is on the move in the stock market. Investors would do well to climb aboard at an early stage, with substantial profits to be made taking the medium-term view.

The four shares that I particularly like are J D Wetherspoon, the pubs group, at 286p; Vardon, the visitor attractions and bingo concern, at 90p; Pelican Holdings, the restaurants group, at 65p; and David Lloyd Leisure, an operator of tennis centres, at 194p.

The four have some common features. Each is a recent arrival on the stock market, whether by a placing or an introduction. This means they have few shareholders, so investors wanting to join the party will have to bid aggressively for shares, encouraging prices to move steadily higher. More important, they all have talented management and a proven formula which they are now 'rolling out' through London or the country at large.

In each case this 'rolling out' process is at an early stage, leaving ample scope for many years of sustained growth.

For example, J D Wetherspoon will soon have 72 pubs in its chain. But its founder, Tim Martin, reckons there is scope for 200 pubs in London alone and his ultimate objective is 1,600 outlets.

Mr Martin has been building his pub chain since 1979, so the business is no overnight wonder. Its modus operandi is to find sites in busy locations and convert them. Most other independent pub operators grow by buying the pubs the majors don't want, which almost by definition are not located in plum locations.

The investment numbers are favourable. Mr Martin reckons to spend an average of pounds 500,000 to fit out a pub, which then makes operating profits of, say, pounds 128,000, giving him a return on capital above 20 per cent when the cost of money is much less. Earnings per share have trebled since 1990 to a historic 13.3p for a price-earnings ratio of 22.

Progress may be modest this year as the increased capital from the flotation is deployed, but the pace should quicken again next year, with new pubs being added at the rate of at least 20 a year.

Vardon is a smaller but probably faster-growing clone of the highly successful First Leisure. The chief executive, Nick Irens, was finance director of First Leisure. The executive chairman, David Hudd, was at Kunick, from which the group made its first acquisition of the London and York Dungeons. The group has recently spent pounds 1m improving the London Dungeon. But its main growth will come from rolling out Sea Life Centres and edge-of-town bingo halls.

Both look capable of significant growth. The Sea Life Centres, of which there will soon be 12 including a 60 per cent- owned joint venture in the Netherlands, to test the concept in Europe, use state-of-the-art technology to give visitors the feeling of being under the sea with sharks and other marine life. There are plans for freshwater and inner-city centres.

Bingo, for which Vardon acquired two companies in April financed by an Open Offer at 72p, is also an attractive business. The key, says David Hudd, is that like 10-pin bowling and multiplex cinemas, the business is moving from high street cinema conversions to edge-of-town locations, often next to food superstores, where they can use the parking facilities at night for much larger audiences. Plans to open two new Sea Life centres and two bingo clubs a year will make a sizeable hole in pounds 10m, but should generate strong growth for Vardon, which looks a good bet on a prospective p/e around 19.

Pelican's share price took off recently when Robert Earl, the US-based tycoon of Hard Rock Cafe and Planet Hollywood fame, injected some restaurants into the group, adding the Mamma Amalfi chain to the group's bistro-style Cafe Rouge outlets.

Both the Cafe Rouge and Mamma Amalfi concepts look capable of being rolled out successfully according to well-proven formulae, and Pelican has an experienced management led by Roger Myers.

The same goes for David Lloyd's tennis centres, where there should be considerable scope for growth, with only eight centres trading to date and plans to open more at the rate of two a year. The next centre to open will be in Glasgow and confidence is growing that this will prove that the concept works well outside London and the South-east. Recent figures were ahead of expectations, with the inevitable drop-outs from membership being replaced more quickly as the economy shows signs of life.

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