The Investment Column: Holmes Place plans expansion

THE GYM is no longer just the preserve of the hulking weight lifter or the injured sports star. Health clubs are becoming increasingly popular with the average man or woman in the street. Even the odd financial journalist has occasionally been spotted on an exercise bike.

The result has been an explosion in the health and fitness market with new clubs springing up everywhere. Holmes Place is one of the new stock market stars that has cashed in on this rapid growth. There is a danger is that the industry will become oversupplied. But with the market forecast to carry on growing by at least 10 per cent a year there should be plenty of room for operators like Holmes Place to expand.

The group plans to accelerate its opening programme, setting up about 10 new clubs a year, which should be the main driver of its growth. On top of that it has signed a deal with Regal Hotels to add up to 25 gyms over the next few years throughout its chain and is looking to grow in Europe.

Holmes Place share price has powered ahead since it floated last November at 128p. Yesterday it jumped another 11p to 287p as it announced that profits more than doubled to pounds 5.4m last year. Analysts forecast current- year profits rising to pounds 6.8m. Even then, the shares trade on a prospective p/e of more than 30 times. However, this is not just a short-term profits story. Earnings growth will be slowed by rapid openings and a new, half a million pound advertising campaign.

The real potential lies over the medium term as club membership rises and its heavy investment programme begins to pay off. On its current rate of expansion Holmes Place will probably triple its size by 2000. The shares are still good value.