View from City Road: Lloyd investors face long game

DOORMEN at the bankers Robert Fleming are said to be unimpressed by the succession of tracksuited punters loping in through their hallowed portals for a copy of the David Lloyd Leisure prospectus.

Any application for shares in this owner of sports clubs, featuring indoor and outdoor tennis courts, swimming pools and gymnasiums, certainly requires more than casual consideration.

Investing in Lloyd undoubtedly carries the risks associated with any young business. Management and financial controls have yet to survive the test of multi-site expansion. The business will absorb a lot of cash since it must open several more clubs before it reaches maturity.

Despite the risky backdrop, Lloyd does have several plus factors. One of the biggest is that it did not get carried away with the Eighties leisure bubble. The first club opened in 1982, and physical growth since then has been pedestrian with roughly one new centre being launched every two years. Profits growth has been considerably faster.

Lloyd's plan now is to speed up to two new sites a year, hence the flotation. As it stands, the company could self-fund one opening a year but it is aware of the need to get to a critical mass of about 13 centres. At that stage, cash flow from existing businesses - largely drawn from membership fees - would more than cover the opening programme, it reckons.

The issue, which closes tomorrow, is tightly priced at 150p per share. The p/e for 1992/3 is 14.5, on projected profits of pounds 5.5m and a low 20 per cent tax charge. The yield is just 2.9 per cent. None the less, Lloyd should get off to a good start and is attractive for those with patience.