Stocks such as Manchester United and Fitness First are leading the growth in the leisure and tourism...
Stocks such as Manchester United and Fitness First are leading the growth in the leisure and tourism market, although many consider this sector to have limited appeal.
The FTSE leisure, entertainment and hotel index has fallen 14.87% over the past 11 months to 31 October, compared to a fall of 2.38% in the FTSE All Share. However, over the same time period Manchester United shares have risen 21.46% while Fitness First has grown by 16.49%.
Mike Felton, director, Pan European Equities at Royal & Sun Alliance Investments, says: "It is not the most appealing sector of the market. The market is looking for a mixture of growth visibility and security of earnings; stocks in the leisure sector do not really offer that. We are underweight in the sector."
Charles Curtis, director, UK equities at Deutsche Asset Management agrees: "There are lots of characteristics of the sector which are not positive because it is very asset intensive."
Both Deutsche and Royal & Sun Alliance are underweight but have positions in Manchester United.
According to Felton: "Manchester United is a special case, it has a powerful, truly global brand, which it can capitalise on through different distribution outlets, especially the internet. It has a very loyal customer base, even abroad. It is a slow-burning long term position."
The leisure and tourism sector currently makes up just a small part of the market. On 30 September 2000 it was only 0.7% of the FTSE All Share index, and is dominated by hotel companies.
According to Clive Beagles, director at Newton Investment Management: "The hotel side is doing well, especially those with exposure to London. The London hotel market will have had a strong year in 2000, despite the pound being strong against European currencies and there not being as many European visitors as in previous years. It has had to rely on US business and business customers rather than leisure customers."
Beagles believes the hotel sector will perform well in 2001 but not as well as in 2000. Economies are slowing but not much new capacity is being added, he says.
The only FTSE 100 company in the sector is the Hilton Group, which also owns gaming company Ladbrokes.
Curtis thinks that Hilton has a strong brand and is likely to benefit from Ladbrokes interest in electronic interactive betting.
"The big question going forward is what Hilton plans to do about the massive possibilities in gaming," he says. "At the moment Hilton is taking a back seat on betting. Gaming is a growth market, we are all betting more with such things as the lottery. The gaming angle on Hilton could be very attractive."
Healthclubs are a significant part of the sector but are small in terms of market capitalisation. Fitness First has a market cap of around £500m and Holmes Place has a market cap of around £200m.
Beagles says: "It is a growing market but there is concern that too much capacity is being added. Too many clubs are being added relative to the way demand can continue to grow and at some stage it will reach saturation point. It is a capital intensive industry and you may not get a reasonable return on capital."
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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