With the economy coming out of recession, a couple of leisure industry picks could be just what your portfolio needs.
Leisure-related purchases are amongst the first to be cut back during recessionary belt-tightening, and it's no surprise that quite a few companies in the UK's leisure industry have seen a rocky year or two for profits. But as economic woes start to ease, we should expect to see the leisure business starting to recover.
With that in mind, I've been trawling companies in the leisure industry in search of bargains. I've left out pubs and restaurants, and holiday companies (because they're probably best treated as sub-sectors on their own), but I've still found a couple of interesting possibilities.
Games are back
A share whose popularity with investors has waxed and waned quite a bit over the past decade or so is Games Workshop (LSE: GAW), the manufacturer and distributor of miniature figures for role-playing games (and for collectors and general hobbyists). Once thought of as old-fashioned and likely to be eclipsed by online role-playing games, the company has had a lean three-year period centred on 2007.
But this year the company bounced back with a rise in earnings per share of more than 150%, to 25p, suggesting that there's life in the old way of gaming yet. And the last time I walked past a shop, a few weeks ago, it looked pretty busy.
Forecasts for the year ending March 2010 are down a bit on this year, with EPS expected to come in at 20p, but expected to be back up over 25p the year after.
Today's share price of 302p (at the time of writing) gives us a P/E for 2010 of 15, falling to 12 for 2011, which perhaps doesn't look like a screaming bargain with there being so many low P/Es around these days. And there's only a token dividend of 0.5p per share expected for next year. But there's 5.8p pencilled in for 2011, and while that's still only 2%, taken together, I think these numbers do make Games Workshop look like a company that's well on the road a long-term recovery. I expect it to do well in the coming years.
Investors who saw this coming a few months ago will be happy with themselves today, and I think Games Workshop is definitely one to watch out for, maybe to buy on any future dips.
Don't like to queue?
Have you ever been to theme parks? I have, and I hate the long queues that form for all the most popular rides, making you spend half your day just standing still. Enter a company that promises to take away that inconvenience (and to help you go spend money at the less popular rides, or on burgers and ice cream, or whatever, instead of emulating a line of shop dummies), Lo-Q (LSE: LOQ).
What Lo-Q provides is a virtual queuing system, allowing you to spend your queuing time wherever you like, and keeping you in touch with how long until it's your turn. You can find out how the technology works on the company's web site, and it does clearly seem to work well, with Lo-Q being the leader in its field.
But what do the numbers say?
The share price chart will certainly please early investors, especially the last five-year chart. But even after that impressive rise, at 79p today, earnings forecasts still put the shares on a prospective P/E of only 6.3 for the year ending December 2009, and 5.3 for 2010. And 2010's forecast growth suggests a lowly PEG of 0.3.
Lo-Q turned in its first pre-tax profit in 2006, and has steadily increased it through one of the hardest periods for the leisure industry for quite some time. And when leisure spending picks up, there'll be even more incentive for parks and similar facilities to minimise the time their customers stand in queues, not spending any money.
I've done no detailed research yet, but Lo-Q is definitely on my watchlist.
If you have any thoughts on these two companies, please feel free to add a comment below.
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