Investment appraisal of Goals Soccer Centres plc

Published:

Section A

  1. Main activities of Goal:
  • The principal activity of the Group is the operation of outdoor soccer centers
  • Supplying bar & vending services, birthday parties, corporate events and sponsorship.

Features of strategy:

Goal implemented a strategy focusing on operational excellence.

  • Creating sustainable value for shareholders
  • Building a strong brand consistently delivering a great customer experience
  • Strong focus on reducing debt
  1. Before admission to AIM a company must comply some criteria
  1. Company itself must be a public company
  2. There should be no restriction for shareholders to transfer their shares and it should be eligible for electronic settlement
  3. Published accounts must comply with International Accounting Standards and their Generally Accepted Accounting Principles

Some benefits for Goals plc to list on AIM

  1. Creates access to a broad range of investors to raise finance for further growth
  2. Simple admission process
  3. Less regulatory requirements, suited to smaller companies
  4. Tax incentives available for investments in AIM companies attractive to both individual and institutional investors
  1. Way of placing
Lady using a tablet
Lady using a tablet

Professional

Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

Advantage:

Time saving: it can be raised within short span of time. Right issue takes long process.

Rules and regulations: there are fewer formalities with regard to rules and regulation, as compared to rights issue.

Disadvantage:

Share value: often sold at a deep discount below their market value.

Control: it requires to giving up some degree of ownership and control over business. New shareholders are able to vote on important decisions affecting the company.

d)

Working:

2010

2011

2012

Basic earnings per share

=11p

=14p

=15.98p

Total dividend per share

=$0.0185 per share

=$0.0185 per share

=$0.0179 per share

Annual growth

2010

£000

2011

£000

2012

£000

Annualised percentage increase (%)

Revenue

=5.98%

=9.49%

=6.81%

(3√6.81-9.49)-1

= -10.47%

Operating profit

=

=9.32%

=3.30%

(3√3.30-9.32)-1

= -29.25%

Basic earnings per share

=

=28.18%

=13.48%

(3√13.48-28.18)-1

= -21.79%

Total dividend per share

=3%

Lady using a tablet
Lady using a tablet

Comprehensive

Writing Services

Lady Using Tablet

Plagiarism-free
Always on Time

Marked to Standard

Order Now

=0%

=-3%

(3√3-0)-1

= 0%

2010

£000

2011

£000

2012

£000

Gross profit margin

=

=88.75%

= 89.14%

= 89.37%

Operating profit margin

=

=35.96%

=35.91%

=34.73%

Net profit margin

=

=19.08%

=22.56%

=24.18%

Gross profit margin has been steady increased since 2010. It has increased as the sales mix moved to the higher margin football product (2011: 73% football; 2012: 75% football)

Operating profit margin shows slightly decrease in these years. It may be affected by increased trade receivable and non-cash exceptional items. Also, the increase in administrative expense may cause to the decrease on operating profit margin. (2012: 55.13%; 2011:10.41%)

Basic earnings per share kept on increasing since 2010. But the annual growth rate has decreased during the period due to the rise of shares was being issued and the fall of net profit.

Total dividends per share have dropped slightly. The annualised percentage increase remains constant during the period.

e) Exceptional items often one-off items excluded from management's assessment of profit because these could distort the quality of earnings. When assess future performance, as items will not recur, company seldom analyze these items by ratio but be separately reported. In practice, items that usually disclosed on the balance sheet and explain in notes to financial statements.

f) Calculate of cash conversion cycle

Days inventory outstanding measure the average number of days that inventory holds before selling it

2011

2012

Days inventory outstanding

Days sales outstanding measure the average days that takes to collect revenue after sale has been made

2011

2012

Days sales outstanding

Days payable outstanding that measure how long company takes to pay its invoices from trade creditors

Days payable outstanding

47 days

30 days

Cash conversion cycle

Cash conversion cycle

DIO+DSO+DPO

84+7-47 = 44 days

75+8-30 = 53 days

g)

Capital gearing ratio is used to analyze the company’s capital structure by dividing the long term debt by common stockholders’ equity

Lady using a tablet
Lady using a tablet

This Essay is

a Student's Work

Lady Using Tablet

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Examples of our work

2011

2012

Capital gearing ratio:

=50%

=47.53%

Income gearing ratio that interest pays of borrowings shown as a percentage of its pre-tax profits

Income gearing ratio:

x 100%

=20%

= 15.67%

h) The main financial strength

  • Goal still make is its increasing profits in 2012 mainly to do with the increase in sales.
  • Increases in EPS also gain advantage since it might attract more shareholders.
  • Settles trade payable and debt reduction which is good sign to business growth
  • Increase in trade receivable

The main financial weaknesses

  • Annual growth of revenue dropped to 6.81% means company focus more on sales rather than revenue growth. Going problem may concern.
  • High gearing ratio of 47.53% which make company more difficult to get long-term loans in the future.
  • Having a net current liability of £1,147,000 with a risk of having not enough money to recover current liabilities.

i) Business opportunities

  • discussions with a number of potential brand partners through new strategic complementary partnerships which intend to increase corporate event and sponsorship of like-for-like sales
  • new digital strategy with social media is designed to increase brand awareness, sales and profits, also IT costs will be reduced by £1.8m

Risks from use of financial instruments

  • Credit risk: customer may fail to meet contractual obligations as trade receivables may write off as bad debts. Both receivables and cash equivalents likely to raise £157k and £508k but management do not consider this significant impact. Credit risk is forecast to increase in future economic climate
  • Liquidity risk: Company will not be able to meet their liabilities as both bank overdraft and other financial liabilities have increased about £1m. Future liquidity problems are considered.

j) P/E ratio = = = 13.8 times

Dividend yield =

k)(i) Net asset value per value = = = 105.54 p

Balance sheet figure is taken into consideration when calculate the share price compared to the market price. It may conclude to be objective as these figures may overstate or understate the value when accounting the value of assets.

(ii) Dividend discount model:

Share price = P0 = D1 / (kE - g) = [D0(1 + g)] / (kE – g)

kE = 9% industry discount rate

g = 0% is the dividend growth rate

D0 = 1.85 p is the dividend per share in 2012

P0 = [1.85(1 + 0)] / (0.09 – 0)

= 1.85 / 0.09 = 20.56 p

This model applies with proper discount rate to discounting them back to their present value. But this also may not be the correct way as it discounts the valuation based on the level of risk. Thus obtains a lower valuation.

l) C:\Users\Yin\Desktop\CFM GOAL GRAPH.jpg

Absolute share price performance is to simply note whether the stock is gaining or losing money, to calculate:

= 107.29%

Share price has raised about 107.29% over 2 years’ time.

Section B

Introduction

Goals Soccer Centers plc, has established itself as primacy operator of ‘next generation’ 5-a-side soccer centers with 43 centers in the UK and one in Los Angeles, USA. Goals’ principal activity is to maintain operation of outdoor soccer centers. From mission statement “To Provide the Ultimate Football Experience” that Goals stated, it strives to provide high quality 5-a-side football experience to customers. Meanwhile, Goals diversify into other key product areas include corporate event and sponsorship, bar and vending and birthday parties. Among different activities, note that ongoing resilience of Goal’s core football product have accounted for 75% of total sales.

Company’s historical operating performance

Goals set up its first branch in 1987â‘´ and have undergone a significant rapid expansion since December 2004, its capacity has been shapely increased for 300% by adding 33 new centers to its estate. In early period 2004 to 2008, as market is quite undeveloped, Goals have seized commercial opportunity to benefit from potential demand through its "next-generation" facilities. After the financial crisis, yet the demand for this has not been significantly affected by the economic climate and sales have steady maintained in these years. But viewing performance in recent years, the annual growth of revenue has become unstable and started to vary as same as earnings per share. Even dividends per share have significant decreased compare with previous years.

Financial health of the company

The financial health of the company is expected to be acceptable but not optimistic as last year. The main cause for this circumstance is that the Goal’s total liabilities have reduced obviously compared to the previous year. Goals also strived to maintain its sales in an increasing level in every financial year. The total non-current liabilities were £62,831,000 in 2011 and reduced to £60,078,000 in 2012. This is mainly due to strong focus on net debt reduction. Besides, Goals have kept sales increasing in 2012 from £30,443,000 to £32,516,000. This could be the case of the increased core football like-for-like sales up by 3%. In 2012, Goal has also fixed with higher total equity attributable which £53,877,000 in contrast to £51,970,000 in 2011. Mainly due to Goals have issue further shares than 2011, thus cause share premium increased by £2,578,000. However, in aspect of current liability to current asset, Goals had a net current liability of £1,147,000 with a risk of having not enough money to recover current liabilities. Bank overdraft also should be concerned as it had increased distinct amount of £980,000. Note that gearing ratio still remains a high level even it has reduced 2.5% to 47.5% in 2012, which may make Goals more difficult to get long-term loans in the future. As a result, Goal’s financial health might contain kind of hidden worries.

Recent share price performance

By analyzing 2011 share price performance, Goals’ share price movement have trending decline at a recession stage. Share price has kept below 100, states that the demand in Goal’s shares has concluded to be undesirable. In 2012, it was another year of challenging economic and against the factor of increasing pressure on household incomes, share price still make no further ascension and remain in range of £105. From Q3, Goals’ share price trended to increase slightly then maintain steady increase index. Demand became stable and starts to increase as shareholders considered Goals share is profitable.

Future prospects

From analyze Goals’ strength of the core business and it is confident that Goal can make further progress during 2013. In order to enlarge business scale, it is assumed that Goals will make progress to run new centres in future due to the pursue of profit making. For financial performance, with improving economic backdrop, it is estimated group sales will maximum up to 5% to £34.1m, like-for-like sales will be likely to maintain in 3% growth. From the 2012 chairman’s statement stated, the board have completely get rid of its strategy on stimulating returns from existing centres and eliminate the Goal’s overall net debt from operating activities. Forecast is made that Goals meet with objective of reducing net bank debt which will decrease for 6% to £47m

Valuation of company’s shares

The market price of the company’s shares at the end of the 2012 financial year was 125.5p. To value share, net asset value would be a method that measure fund per share value based on its net assets. Generally, data required for net asset valuation are usually available and can be easily calculated. However, this valuation might not be a valid method as does not take into concern of future changes in sales or income. Moreover, while accounting the value of intangible assets like goodwill and copyright, value may have understated as not all assets accurately reflected in balance sheet. Another shares valuation method would be dividend discount model, by using future dividends and apply with proper discount rate to discounting them back to their present value. But this also may not be the correct way as it discounts the valuation based on the level of risk. Risk is usually links with business, thus obtains a lower valuation compare with unlikely stable business. In summary, the ideal way to value shares would be exercise the market value, as it takes comprehensive account of information from the company.

Conclusion

Goals Soccer Centres plc would be a potential company to invest in after reviewing its financial performance. Maintaining sales would be vital to business and create on-going substantial value for shareholders should be first priority for Boards. The Board must continue with its strategy of focusing on driving returns from existing core activities. Besides, the Board strives to reduce company's gearing ratio to guarantee going concern concept. From different aspect, the Board can accelerate the speed of accounts receivable collections, on contrast, extend the days required to pay accounts payable also alternative way to reduce leverage. Finally, Goals' share prices have eventually increase compared to Q3 of 2012 which was 118 p. With recent rising trend, an infinite rise of share price would be expected to preserve in following years. Thus, a highly profitable business like Goals is worth to be investing in.

(2200 words)

Reference

Arnold,G. (2008) Corporate Financial Management, (4th ed) UK, Pearson Education Ltd

Goals Goals Soccer Centres plc, 2009-2013 financial reports, available at:

http://www.goalsplc.co.uk/goals/investors/?sec=2&sub=1

The AIM admission process, available at:

http://www.makingaimeasier.com/introduction to aim.aspx

Private placement of securities, available at:

http://www.referenceforbusiness.com/small/Op-Qu/Private-Placement-of-Securities.html

Financial Statements: Working Capital, available at:

http://www.investopedia.com/university/financialstatements/financialstatements6.asp

Exceptional Items, available at:

http://ar2011.itvplc.com/financial-statements/section-2-results-for-the-year/22-exceptional-items

Dividend Discount Model value stocks, available at:

http://www.stockopedia.com/content/how-does-the-dividend-discount-model-value-stocks-67455/

London stock exchange, available at:

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary-chart.html?fourWayKey=GB00B0486M37GBGBXASQ1

1