The Investment Column: Northern Leisure's spree

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The Independent Online
WITH conglomerates having fallen out of fashion and focused companies all the rage, Northern Leisure is playing the right tune. The nightclub owner has put in the sort of performance that must have sent shareholders dancing with delight by simply sticking to what it knows best.

The group deliberately eschews the trendier night spots in London which wax and wane with the latest fashions. Instead, Northern Leisure specialises in buying clubs from local owners in provincial towns.

By sprucing up the clubs and using its buying power to cut costs it has proved it can earn the sort of margins and return on capital that is enough to turn most leisure companies green with envy. Using this simple strategy Northern Leisure has been able to expand rapidly through acquisitions. With plenty of sites still up for grabs it now plans to accelerate this spending spree by opening at least 15 new clubs a year. The key to its success is a strong management team, most of whom have done little else but run night clubs throughout their working lives and who are locked into long-term incentive schemes.

Not all of the clubs are firing on all cylinders at once as fickle youngsters turn to different venues. But as its portfolio grows it can spread the risks and the group benefits from more economies of scale.

Profits for the six months to March almost doubled to pounds 7.2m, and like- for-like sales are currently growing at nearly 6 per cent.

The shares slipped 2.5p to 512p but the stock, which is one of The Independent's tips of the year, has still risen by a quarter since January. House broker Collins Stewart forecasts full-year profits of pounds 17m, putting the shares on a prospective price-earnings ratio of 25. Still worth the entrance fee. Buy.

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