POWERLEAGUE (PWR)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

POWERLEAGUE (PWR): Sep 2007

RHPS Recommendation - SELL

The share price has held up very well against a difficult market. Trading on 27 times earnings the shares are not especially cheap, so we sold on 30 August. SELL

POWERLEAGUE (PWR): New 120p Price Target – Apr 2007

RHPS Recommendation - HOLD

Sales for the six months to December 2006 were 15% ahead of 2005, thanks to a combination of new openings, some price increases, greater use of the pitches, and increased income from sponsors Nike, Lucozade and X-Box. Trading at the newly opened centres in Bolton and the City of London has exceeded expectations, and Powerleague has announced a new site at Milton Keynes. I have raised my target price to 120p, but with the shares above my revised 85p buy limit, HOLD.

POWERLEAGUE (PWR): New sites identified – Dec 2006

RHPS Recommendation - HOLD

At its AGM, chairman Claude Littner has said that sales this year are in line with expectations, and Powerleague’s cash position is strong. It has refurbished its soccer centres in Paisley, Friern Barnet, Mill Hill, Birmingham ad Hamilton with the latest pitch surface and added an additional 7-a-side pitch at Kilmarnock. Recent openings in Coventry, Bolton and the City of London have made a good start. Two more centres will be open this year, and Powerleague’s pipeline of potential sites has increased, so that it now has planning permission for three sites, is in the planning process for four more and has 30 other sites in various stages of negotiations. This is important as it paves the way for more growth in the future. HOLD

POWERLEAGUE (PWR): First dividend - Oct 2006

RHPS Recommendation - HOLD

Five-a-side football operator Powerleague will pay its first dividend, of 0.75p, after a year that has seen turnover rise by 17% and like-for-like growth of 3% from its 34 centres. Sponsorship income from the like of Nike, Microsoft and Braun rose by 7%, and the business generated cash of £7.5m compared with £5.4m last year. A revaluation of the properties has boosted the shares’ net asset backing to 53p.

POWERLEAGUE (PWR): Strong demand for 5-a-side - Jun 2006

RHPS Recommendation - HOLD

Powerleague is buying a 5-a-side soccer centre in Bolton. This will be upgraded over the next four weeks and will then have 10 pitches. It reports that demand for five-a-side soccer across its total of 35 centres has never been stronger, and that the recent opening of a centre in the City of London has been its most successful ever.

POWERLEAGUE (PWR): Mar 2006

RHPS Recommendation - HOLD

Interim figures show that Powerleague is on track to meet broker Evolution’s 2005/6 earnings forecast of 3.7p. New openings at Kilmarnock and Basingstoke have made an excellent start, and Budweiser and Braun have been signed up as sponsors. With the shares above my buy limit of 66p. HOLD

POWERLEAGUE (PWR): Feb 2006

RHPS Recommendation - HOLD

Powerleague is trading strongly and is on target to open a third centre in Coventry before this summer’s World Cup, bringing its total up to 33. With the shares now through my buy limit, HOLD

POWERLEAGUE (PWR): This 5-a-side share could grow 61% or more in 2006 - Jan 2006

RHPS Recommendation - BUY

Which team do you support – the Jedi Knights, Dynamo Crouch, Go Ahead Kroxley or the Bushey All Stars…?

These are just some of the 200 league teams that play 5-a-side football at the Powerleague Centre in Watford, just a stone’s throw from the David Lloyd Tennis Centre. They are now taking part in a sport growing fast. Six million people now play 5-a-side football and that is more than play 11-a-side. Much of this is due to the facilities now being provided by Powerleague plc.

Like many successful businesses Powerleague is creating its own demand. Build a football centre and suddenly the community becomes full of 5-a-side addicts. Thanks to smart local marketing Powerleague signed up 150 teams before its Watford centre even opened last February. It proved so successful that Powerleague has already added an extra two pitches.

Earning £43,000 per pitch per year

Powerleague now has over 80,000 players on its national database, playing week in week out and this includes growing numbers of women, some of whom were chasing round the pitch with cries of “Square Ball” and “Oi Ref!” when I visited Watford just before Christmas. Executive Chairman Claude Littner, who owns 24% of the shares, showed me around.

Claude is football mad. Mad enough to have been Chief Executive of Tottenham Hotspur from 1993-99. And he is mad on the prospects for 5-a-side football. “The financial returns form this centre,” he enthused, “are brilliant, absolutely brilliant.”

In fact, I’d already worked that out form the figures shown in Powerleague’s AIM admission document from May. The cost of building a new football centre with 10 pitches is £1.2m. To play cost £5 per player per game. So even a mere 75% utilisation rate during peak periods, each pitch generates £43,000 per year from just under 2 ½ games per day.

Why match bookings always pay up

The centres are simple to run. Powerleague gets 21% of its revenue from the drinks bar, but this is a modest affair. The majority of players turn up, often already changed, play their match and go home. The manager and receptionist take bookings, arrange the leagues, and hire the F.A. qualified referees. They are also incentivised to ensure that teams fulfil their fixtures – throwing them out of the league if they do not.

All teams must pay in advance, so there are no bad debts. Customers are invoiced even if they fail to use a pre-booked pitch and are barred from playing until all outstanding bills have been settled. And most teams are involved in leagues or else take advanced block bookings for 10, 20 or 50 weeks. This makes the revenue stream quite predictable.

Powerleague has organised numerous corporate events for blue chip companies such as Honda, JD Wetherspoon and Barclays. It also runs local and national tournaments such as the ‘Student Fives’ (in association with the Scream pub chain), the Nike Pro 5-a-side Challenge, and the Scottish Carlsberg 5-a-side Cup. There are children’s parties too, with food delivered by the local McDonalds. So with all this regular use, only 2% of revenue comes from casual one-off bookings.

Business to grow 23% in 2006

The clubhouse, of simple design, is constructed using a flexible modular technique. This keeps the cost low and the construction time short. Historically the pitches have been made of sand-filled turf, but today Powerleague uses a modern ‘rubber crumb’ surface that comes with a ten-year guarantee. Powerleague now runs 32 centres, each with around ten 5-a-side pitches, two of which can be joined together for the growing popularity of 7-a-side football.

Some centres, including Watford, are on school land. Powerleague typically acquires a 99-year lease, which gives the school or local education authority a guaranteed revenue stream, couple with free daytime access to a brand new sports facility. The league games, of course, are ‘evening kick-offs’.

With the concept now thoroughly proven Powerleague is intent on delivering its customer base of soccer nuts to advertisers and growing its chain. Planning permission takes time, but through a combination of new site openings, the acquisition of sites form another operator, and the expansion of existing centres, Powerleague expects to increase its number of pitches from 282 to 347 in the financial year which ends next June. And it is on target to open a further four centres in the following financial year.

Nike, Lucozade and Microsoft are already on board

A high profile opening will be in Coventry, where Powerleague’s centre will form part of a major leisure project involving the creation of a regional gymnastics centre. As well as its 10 football pitches Powerleague will also run an ‘affordable’ gym, and be responsible for the refreshment sales for the whole development.

Advertisers are now keen to associate themselves with a company that is promoting healthy exercise and embedding itself in the local community. Powerleague has already attracted sponsorship from Nike which has launched a new shoe, the ‘Air Zoom Contro’ designed for 5-a-side football. There are also long-term deals with Lucozade and Microsoft, which places free gaming consoles in the clubhouses. “These are in constant use,” Claude observed dryly.

In short, Powerleague has a very successful formula. The ownership of its sites gives it a strong asset backing, and it finances its growth out of cash flow. The 5-a-side industry is at an early stage, and there is every reason to think that Powerleague can become a much larger company as it builds new centres across the country.

RHPS Verdict: Unlike the Wimbledon effect, which for only two weeks of the year has all available courts filled with aspiring tennis stars, soccer has an enduring appeal. In truth, the World Cup is unlikely to make a huge difference and it does not have to. Powerleague has all the making of a long-term growth share. BUY

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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