First Leisure gets low grade for performance

Investment

DESCENDING from the ivory tower of Channel 4 into the low-brow world of First Leisure's nightclubs and bingo halls has proven a bit of a culture shock for Michael Grade.

When he joined the leisure conglomerate in July last year it seemed that Mr Grade, who yesterday relinquished his position as chairman and remained as chief executive, could do no wrong.

Few predicted that Mr Grade would have to contend with difficult trading conditions, a shareholders' revolt over executive pay, and a couple of difficult sales of underperforming businesses such as the Blackpool Tower.

The shares have also had a mixed performance, soaring to a peak of 436.5p in June this year before plunging to 160.5p last week. This may seem harsh, given that Mr Grade's strategy is fundamentally sound.

Getting rid of the poorly performing resorts and bingo divisions to concentrate on nightclubs, bowling and health centres makes sense and should pay dividends in the long term. In the short term, however, the three pillars of Mr Grade's plan are likely to be hit by the economic downturn.

True, people could trade down to First Leisure's pounds 10-a-night venues if the going gets tough. But if it gets really tough and unemployment starts to bite, nights out, no matter how cheap, will be definitely off the agenda.

The shares, down 4p to 171p yesterday, are now on a measly nine-times 1998 earnings, forecast at around pounds 40m. At these levels First Leisure is worth holding until better times come.