Pre 8 a.m. comments

5-a-side football centre operator, Goals Soccer Centres (LON:GOAL) issues an in line trading statement this morning, in advance of its AGM at 10:30 a.m.. Bank debt has been reduced marginally from £50.2m to £48.75m between 31 Dec 2012 and 29 Apr 2013. I've always rather liked the underlying business here, which generates tremendous cashflow, but the level of debt is still too high for comfort, in my opinion.

The problem with highly indebted companies is that as an equity investor you're very much playing second fiddle. It only takes the whim of the Bank to suddenly shift from feeling comfortable to feeling nervous, and all of a sudden you have a crisis, where the Bank can impose all manner of demands, and ultimately even force the business into an emergency Rights Issue, or even into Administration.

Just because the Banks are under political pressure to preserve jobs in the short term by allowing zombie companies to continue trading, doesn't mean that the risk has gone, it's just hidden. I feel that many investors are therefore becoming too complacent about companies with excessive debt, and may get a nasty shock if & when the attitude of the banks change.

I might look again at GOAL once the debt has reduced by a material amount. To my mind an acceptable level of debt is around 1.5 times EBITDA. That's not set in stone, it's just a finger in the air type of number that feels about right to me. At the moment EBITDA at GOAL looks to be about £13m p.a., so their net debt is way above that, although in fairness they do have substantial fixed assets to support the balance sheet.

The problem is also that you cannot refinance easily at the moment either. So if the existing Bank stop playing ball (geddit?!!) then where do you go?

Goal's Chairman is stepping down after 10 years, but this appears to have been pre-announced, so does not seem cause for alarm.


Deltex Medical (LON:DEMG) issues its pre-AGM statement too, and it all reads pretty well. I hold a few shares in this one personally, which I bought recently after a positive announcement concerning the USA Govt approving the Deltex product for fast-track electronic payments to reimburse physicians who use it.…

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