Sceptre Leisure

Sceptre Leisure, the expansionist amusement and gaming machine hire group guided by Ken Turner, offers exposure to fast-paced, defensive growth.

Interims to October showed a 20% sales increase to £21.2m and even swifter 54% growth in operating profits to £1.6m, as additional revenues dropped through to profits. A significantly improved £5.4m of cash was generated during the half and, along with £5.5m of new money attracted in the summer, enabled a reduction in net debt to £16.7m.

Turner, CEO, said the impressive financials were driven by growth in machine numbers during the previous year’s second half, while Sceptre, a relatively simple hire business with no exposure to bad debts, was successful in locking in organic growth by clinching new national contracts with Whitbread and Greene King among others.

Despite recessionary pressures, Turner reported a creditable 1% rise in average machine weekly rentals to £39.15, while machine asset utilisation stayed north of 95%. He explained this resilient performance reflected the importance of fruit machines to pubs’ net profits, typically accounting for 25-30%, and the fact that ‘gaming income has always been relatively recession-proof.’

Meanwhile, Sceptre, whose Lotteryking business continues to penetrate the registered members' club market, remains keen on acquisitions, having recently acquired Dorset-based Australia 8 Ball in a £1.1m cash and shares deal strengthening its position in the south of England.

With the stronger second half to follow, analysts see Sceptre delivering full year profits of £3.5m pre-tax and 4.6p of earnings. On those estimates, the shares, recommended by Growth Company Investor at 33p in February, sell for 12.3 times forward earnings. We consider that a relatively undemanding rating given recent performance and long-term prospects and investors able to do so should top up existing holdings.