companies

Newbury Racecourse

EPIC: NYR
Mid-price: 575p
Spread: 550p – 600p
Total no. of shares: 4,776,500
Market Cap: £27.46 million
12 Month range: 575p – 925p
Website: www.newbury-racecourse.co.uk
Sector: Leisure Entertainment & Hotels

Background:

Newbury Racecourse is the owner of the eponymous racecourse in Berkshire, which stages 28 racing days per year. To add to this the company, which listed on the old Ofex market back in 1995, has sought to broaden its income through a more diverse series of events in recent years. For example, musical events such as ‘Party in the Paddock’, golf course and conference centre facilities are additional revenue generators. Newbury also runs a corporate membership scheme to attract commercial interests, and now operates an in-house catering service, as a result of which catering sales increased by 17% on a like-for-like basis in 2009.

Elsewhere, the company has a deal with TurfTV to broadcast its racing events to licensed betting offices, a contract which is set to last until 2012. Newbury received its first payment of £77,000 from Turf TV in 2009. The company also signed a contract with now-defunct broadcaster Setanta to show racing on the Racing TV channel, which now operates as a standalone premium channel on Sky and cable. Channel 4 will show the ground’s racing on terrestrial television until 2012.

As we write Newbury is embarking on a major redevelopment of the racecourse and its facilities. This will include a 120-bed hotel, improved access to the racecourse and to the existing golfing and racing facilities, and 1,500 new homes to be built on land no longer needed for racing. Outline planning permission was granted in March 2010 after the government confirmed that the plans would not be called in for consideration.

Financials & Current Trading:

In 2009, pre-tax losses at the firm expanded significantly to £701,000, from £96,000 in 2008, while turnover fell back by 7.3% to £10.187 million. The reduced income was due to the loss of one racing day in February because of bad weather and the absence of one-off benefits seen in 2008, such as the sale of land. Gross profit was up by 19% to £1.992 million, helped by the one-off events and a 12% fall in cost of sales to £8.195 million. The firm had net current assets of £777,000, an improvement over net current liabilities in 2008 of £4.746 million, and net debt was marginally lower at £7.134 million, down 0.7%.

At the end of 2009, Newbury undertook a rights issue to reduce its net debt and provide greater financial flexibility for its new development programme. The company raised £6.4 million through the issue of 1,592,167 shares at a price of 400p per share. The placing was fully underwritten by the two largest shareholders of the company, Guinness Peat Group and Compton Beauchamp Estates.

2010 has started on a poor note, with a fixture cancelled due to bad weather. However, the company did succeed in raising £5.7 million to repay loans from Allied Irish Banks.

Management:

Sarah Hordern, Managing Director Property, Development & Finance, was appointed joint Managing Director in June 2008, taking particular responsibility for Property and the Redevelopment Project. She first joined Newbury in 1999 as Financial Controller, becoming Finance Director in 2001.

Stephen Higgins, Managing Director Racecourse & Events, was also appointed joint Managing Director in June 2008, taking particular responsibility for the Racecourse and Events businesses. He joined the Newbury team in 2006, having been Managing Director of Wincanton Racecourse for 5 years.

Director Nicholas Jones, a chartered accountant and business school graduate, is currently Vice Chairman in London of investment bank Lazard and the senior Independent Director of Ladbrokes. He joined Lazard as a Managing Director in 1987 from Schroders where he had worked for twelve years. He was also Chairman of the National Stud from 1991 to 2000. He owns Coln Valley Stud near Cirencester and is a member of the Jockey Club. Nicholas Jones joined the Board in May 2007.

Director, The Hon Harry Herbert, is the Chairman and Managing Director of Highclere Thoroughbred Racing Limited, a racecourse syndication company with over 40 horses in training. The company has enjoyed many successess and has been responsible for the Epsom Derby winner, Motivator, as well as the other European champions Lake Coniston, Tamarisk, Delilah and Petrushka. He is a member of the Jockey Club and lives near Andover.

Other Directors include: Lady Madeleine Lloyd-Webber, a former international three day eventer; Erik Penser, a racehorse owner and breeder; Sir David Sieff, a former director of Marks & Spencer from 1972 to 2001; Christopher Spence, who was Senior Steward of The Jockey Club for five years; Brian Stewart-Brown, a racehorse owner who worked in the aviation reinsurance business at Lloyds; and Laurie Todd, Chief Financial Officer of Guinness Peat Group.

Investment Recommendation:

Newbury is making good efforts to diversify its income and make itself less dependant on racing alone. This is a wise move considering the relatively flat or declining attendance figures seen in UK racing in recent years. The new days seem to be bearing fruit, and the major redevelopment is also promising development. However, currently trading at a substantial premium of 81% to net assets and currently loss making, the group needs to prove it can reap the full benefits of its new undertakings before we can recommend an investment.