Buying into an IPO in a toppy market can be a bad move, as timings aim at getting the best deal for the sellers, not new buyers. But when a company comes to market in a relatively lacklustre environment like today’s, looking for the cash it needs to grow, I’m less concerned.
Arena Events Group (LSE: ARE), which floated on AIM only in July this year, is one that I think is looking good. The company, which provides temporary structures, furnishings and the like for sporting, outdoor and leisure events, raised £59.3m in its IPO. That allowed it to get net debt down to £10.5m while leaving enough on the balance sheet “for future acquisitive growth“.
Revenue in the half reached £51.1m, up from £44.5m at the same stage last year, and gross margins look healthy after gross profit rose by 5% to £14.7m.
Cash looks good, with operational cash generation up from £2.8m in 2016 H1 to £7.4m, and the company was moved to post a maiden interim dividend of 0.45p per share — that’s a first-half yield of only 0.7% on the 61p shares, but it suggests confidence in the firm’s future dividend potential.
Arena has managed the “successful delivery of multiple recurring contracts“, including Cheltenham Festival. It has extended its European Tour contract by four years, which should bring in up to £10m, and a new five-year contract with the US PGA is the “largest contract win” in its history.
The main outdoor event season is June to September, and the second half of the year has apparently started well and full-year expectations seem confident.
We really don’t have any meaningful financial ratios at this stage, but even without them, Arena Events really does strike me as one that could reward IPO investors well in the next few years.
Recovery on the cards
My second pick is Goals Soccer Centres (LSE: GOAL), a company that operates five-a-side football pitches. Goals has had a tough time, with three years of falling earnings (plus a further drop predicted for this year) sending the shares into tailspin — the price has lost 60% since a peak of 242p in early 2015, to 98p today.
But I reckon that could be all set to turn around nicely.
One arm of of the firm’s recovery plans is to refurbish its UK offerings, and upgrading 27% of its clubs with five arenas or more has already seen football sales grow 5.1%. Smaller venues have not done so well, so the focus is on those larger ones (which constitute the majority anyway).
The second arm is the launch of the brand in the USA. To that end, Goals has pulled off a 50:50 joint venture with City Football Group — that’s the business behind Manchester City and New York City football clubs, and it looks like a bit of a coup to me.
A handful of US clubs have already opened, and there’s some way to go yet — but we could easily be seeing some feedback into 2018’s bottom line, with an EPS rise of 15% forecast for that year.
This time we do have useful ratios, and we’re looking at a P/E of only a little over 11 on 2018 forecasts. If we really are past the worst and the mooted return to growth does come off, that could look very cheap.
A third growth candidate...
I reckon Arena and Goals both show strong growth potential now, but I'd also like to introduce you to another top candidate.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.