ALLG - All Leisure

Right, another TMF link as a little bit of background:

http://boards.fool.co.uk/all-leisure-allg-12309115.aspx?sort=whole#12322384

This is kind of a recovery/growth play. All Leisure are a company that operate a number of cruise trips around the world at generally premium prices. Growth in revenues have been good over the previous few years but the main issue is that margin has collapsed - from 13% in 2008 to 3.8% today. Basically every economic parameter that could go bad for this company has gone bad recently; I think this extract from their interim report pretty much sums it up:

"Against a backdrop of unprecedented natural disasters and geo-political events, and despite challenging market conditions, reduced discretionary customer spending, persistent low interest rates, increased oil prices and a weak pound, I am pleased to announce that the Group has delivered operating results ahead of those for interim 2010."

Despite this the company has been investing for growth and has used the IPO proceeds to purchase new ships - revenues have almost doubled in 4 years which is very impressive.

Simply, I'm trusting that in the long term economic conditions will improve which will help this company. The directors also have very significant skin in the game, 70% of the shares are owned by them with 60% held by the chairman so I trust them to act in a shareholder-friendly way.

Risks 

The balance sheet is a bit ropey - no debt as such but negative £26m of current assets compared to an operating profit of £3m and a Z score of 1.12. I'm banking on management being able to handle this in a shareholder-friendly way (i.e. not a rights issue). The company is still valued below book value though.

Also I think some of the justification for the treating of derivatives as an 'exceptional' as quite ropey. Surely the point of the derivative is to hedge risk away, so any loss in its value should be replaced by a gain in the business?

The economy also doesn't really appear like it's going to recover any time soon, but I'm willing to wait. If margins ever return to double-digit territory and the growth continues then this share could eventually be worth 3-4x as much as it currently is.

Long ALLG @ 38.0175p