Thursday's tip on UK-Analyst is from the award winning AIM & PLUS Newsletter
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Buy Stagecoach Theatre Arts (STA) at 42.5p Says The AIM & PLUS Newsletter The August edition of the AIM & PLUS Newsletter, with two hot new tips, investment recommendations, features, company updates and lots more, has just been published. To get access to this prestigious publication, twice winner of the AIM Best Research Award and edited by PLUS Journalist of the Year Richard Gill click here.
THE
BUSINESS
Stagecoach Theatre Arts operates the UK’s largest franchised network of part-time performing arts schools for children aged between 4 and 18. Offering part-time tuition in the three major performing arts disciplines of dance, drama and singing, as of today the group operates around 623 of its flagship Stagecoach Schools around the country as well as 719 Early Stages classes - those focused at students aged 4 to 6 years. Boosted by the popularity of a number of musical based television talent shows, Stagecoach has enjoyed growing demand for its services in recent times by youngsters keen to emulate their West End idols. While the 2009 financial year was hit by the economic downturn, in every year until then and since its establishment the firm saw steady growth in the number of students on its books. The Stagecoach service is sold to parents as offering their children a sound education in performing arts, as well as teaching them key life skills. Parents receive progress reports twice a year and students receive medals for longevity and participation. The group also regularly has large-scale performances and events across its network, including annual showcases. Many students have gone on to perform on the West End Stage and star in films and on television. Away from performing arts the group runs 22 SportsCoach schools, which provide a range of sport-orientated activities to children aged 8 to 16. Supporting these are ten Early Sporties Classes for children aged 4 to 7. The firm also runs 106 Montessori branded nursery schools and has a small children’s parties business. Outside the UK Stagecoach has a fledgling international business, with schools operating across the world in the US, Canada, Spain, Greece, Australia, Malta and Ireland, with a particularly strong presence in the German market.CURRENT TRADING While the effects of the recession caused several schools to close and others to reign in expansion plans, results for the six months to 30th November 2009 showed what the company described as a “satisfactory performance” in a difficult economic climate. Network fees, those received by franchisees, were down by just 1% in the period at £13.1 million, with group revenues slipping by £0.1 million to £3 million. Pre-tax profits hit £267,000, down 20% mainly as a result of write backs in the previous year not being repeated. Earnings were down from 2.5p to 1.9p but the interim dividend was still maintained at 0.5p per share. On the balance sheet, which has a highly simple structure, cash balances stood at £1.3 million at the period end and the company only had negligible borrowings. The cash position was up from £1.04 million at the year end in May 2009, and was boosted by a £547,000 net inflow from operations, with the major cash outflow being £0.2 million worth of dividends. Net current assets stood at a healthy £1.87 million at the period end. Stagecoach maintained a confident but cautious approach to its future prospects, stating that the severe winter weather in January had a disruptive effect on marketing and advertising campaigns. However, this is not expected to have a significant effect on full year results
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Guide. OPPORTUNITIES & THREATS Considering that Stagecoach provides a discretionary service it is highly encouraging to see earnings holding up reasonably well during a major recession. In the company’s experience spending on children’s education tends to be one of the last things cut from family budgets and this was evidenced by the only minor fall in student numbers of 4% in the period from May 2008 to May 2009. We also put the performance down to the strength of the company’s brand and the popularity of performing arts. Crucially, we see no major changes in the recent emergency budget which will affect Stagecoach’s target market (middle class parents) and what’s more, when the economy starts to grow steadily again the company should benefit from higher attendance figures. Encouragingly, there is no sign of the popularity of performing arts abating, which can only be helpful to the group’s prospects. Musical talent shows, such as the recent Over the Rainbow on BBC 1 – the final show of which attracted an impressive 6.4 million viewers - continue to attract some of the highest television audience figures in the UK. Notably, according to the Society of London Theatre, 2009 was a record for the West End in London, with box office revenues up by 7.6% to over half a billion pounds and attendance numbers up by 5.5% to over 14.25 million. ASSESSMENT Considering the performance seen during the recession we do not believe that a forward rating of 7.4 times is too demanding for the shares. What’s more, unless trading takes a significant turn for the worse we see no reason for the dividend to be cut. In fact, if forecasts are met we support broker Daniel Stewart’s belief that the dividend will be hiked to 2.8p in 2011. This is a reasonable assumption considering that a) dividend cover for the year will be a comfortable 2.1 times - higher than the level of cover for 2010, b) that the payment is backed by a strong cash position and c) that the company has stated its commitment to a progressive dividend policy. If a 2.8p payment is made the yield will be a very healthy 6.6% in 2011 - one of the highest incomes paid by an AIM listed company despite Stagecoach being in the bottom quartile of firms by market capitalisation. BUY.
Key Data The AIM & PLUS Newsletter, launched in 1995, covers shares listed on the Alternative Investment Market (AIM) and the PLUS Markets trading facility. Twice winner of the prestigious AIM Best Research Award, every month. The AIM & PLUS Newsletter brings you two meticulously researched tips as well as investment ideas, analysis and expert comment on a wide range of companies from these vibrant markets, and is edited by current PLUS Journalist of the Year Richard Gill. To gain access click HERE.
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