Earlier this year soccer player David Beckham announced that when his contract with Real Madrid expires in June, he’d begin a new $250 million, five-year deal with the Los Angeles Galaxy of Major League Soccer, the ten-year-old semi-successful professional league operating in the United States. The press went nuts and sports radio, from LA to New York were buzzing about the great one’s arrival on the North American soccer scene. Will Beckham’s popularity translate to more people watching professional soccer in the future? I’m skeptical. What I do know is it’s far more likely to have an effect on recreational soccer in this country at all levels and one of the beneficiaries could be my stock pick of the day – Goals Soccer Centres plc (GOAL).
Over in the UK five-a-side football (what we call soccer) is all the rage. Leagues are sprouting up all over the place and companies are jumping into the fray to meet an insatiable demand for the recreational sport. Goals Soccer Centres competes tooth and nail with Powerleague plc (PWR) for recreational league supremacy in the UK. It’s believed something like six-million people play the small-sided game, making it more popular than the traditional 11-a-side competition. Regardless of whether professional soccer takes off, I believe the opportunities in the U.S. for both companies as well as new entrants are significant.
Goals will add a minimum of five centers per year for the foreseeable future. Since the company went public in 2004, they’ve doubled the number of branches operating across the UK, currently at 23. Each location has the finest facilities including rubber-crumb artificial playing surfaces like many of the top European soccer clubs use, state of the art locker rooms and fully licensed lounges to have a pint with your teammates after the game. Brits love their football and beer equally so it’s not surprising that the business is growing like gangbusters. In Birmingham, the company has built a 10-field facility on top of a multi-level parking lot at Star City, Europe’s largest urban entertainment complex. While they may not be the biggest operator, they are most certainly leading edge innovators.
Here are the Top 5 reasons to like this stock:
- Sales in the past two years have doubled from £8 million to £16 million while pre-tax margins have jumped from 7.4 percent in 2004 to 29.3 percent in 2006.
- Like for like sales growth (what we call same store sales in retail) were up 9 percent in 2006, an excellent showing.
- The company entered into a marketing partnership with Umbro (UMB) to promote each other’s brands where possible. Umbro is a leader in football kits as well as the official partner of the Football Association in their five-a-side championship.
- Return on Assets for Goals is 7.5 percent. In comparison, Powerleague, its biggest competitor, is around 3 percent or roughly half.
- The company retains 86 percent of its profits compared to 68 percent for its competitor. On the funds reinvested in the company, Goals achieves a 16 percent return on equity compared to 3 percent for Powerleague. Clearly, they do a better job of managing their business.
I believe what will transpire from the David Beckham experiment is that soccer will take its rightful place along side football, baseball and basketball in the recreational sports arena and if Goals is as smart as I think they are, they’re watching America with serious interest and will land on our shores sooner rather than later.
GOALLLLLLL!!!!
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