Fool's Eye View

[ November 28, 2000 ]

Lady Luck

By Nigel Roberts

Chippenham, Wiltshire -- There has been a long discussion over on the investment strategies board about whether it is possible to time the market. My view, which I have expressed many times, is that it is impossible to predict short-term movements in share prices and so it's not worth trying. Today I discovered an investor who appears to have a wonderful "nose", who seems to have timed their investment in a particular share perfectly.

The health and fitness club sector has been an exciting one for investors in recent years, and features as one of the sectors examined in depth in our most recent subscription product, the Industry Focus 2001. Most of the listed companies operating in the fitness club market have performed pretty well, growing their businesses rapidly; one that has failed miserably has been the Lady in Leisure Group (LSE: LLG), the female-only health club.

Lady in Leisure has been in trouble for some time now, and investors in the company has seen the share price fall and fall from its peak in 1998 of 246p to a low of 14.5p, valuing the company at just £1.5 million. The problems for Lady in Leisure have been that while other health clubs have been growing fast and turning that growth into cash and profits, the women-only fitness club concept has stalled; while sales have been increasing profits have disappeared; and cash is being burnt at an alarming rate. Who in their right mind would invest in this company, which looks all set to eventually fail?

Well, along comes a mysterious investor last Thursday, called Foldcarve. An "investment company", it stumps up a small amount of cash for shares. More importantly, it bought the option (at just £1) to buy more shares that would eventually give Foldcarve a 29.9% stake in Lady in Leisure. When I saw the news I must say I was quite surprised. Foldcarve had pledged to pay 15p a share: that would cost it up to £680,000 for shares in a company that I thought was destined for the receiver. Without this cash it is unlikely that the company would have survived much longer. Surely Foldcarve could not be so stupid?

All became a little clearer today when Lady in Leisure announced that "following press speculation this morning, it is engaged in talks with Fit Stop plc, which may or may not lead to an offer being made by Fit Stop plc for some or all of the assets of the Group." According to the rumours in the press Fit Stop, which is quoted on OFEX, may bid 40p per share for Lady in Leisure. Whether the rumours are true or not, the shares have zoomed ahead today to 22p, giving the mysterious Foldcarve a near 50% profit in just 3 working days -- nice work if you can get it! Clearly some people do know how to time the market! And to think I believed that it was only those with inside information that were able to do this successfully...

It is thought that Fit Stop is not really interested in the Lady in Leisure business, which really is a concept that has a limited expansion opportunity. The most likely outcome is that Fit Stop may buy all or some of Lady's 22 women-only clubs, and turn them into mixed fitness centres. Lady in Leisure is thought to be looking for about £6 million for the clubs and would turn itself into a cash shell if it manages to sell them.

Where Next?

• Thinking about an investment in the Fitness Sector? Have a look at the Industry Focus 2001 first!