LON:AVS^J17 | Avesco Plc - The Show Must Go On!

9th Jun '16 by Dearg Doom

6 comments 5848 reads

Avesco (LON:AVS)

Share Price £2.08 (Down 4.3% today) Bid/Offer 2.03/2.10

Market Cap £41 million

(Disclosure I am long this stock)

(Source Avesco Website)

About the Company

Providers of specialist services to the corporate presentation, entertainment and broadcast markets now divided into three divisions. The Creative Technology which is the key part of the company is an international supplier of audio/visual equipment for live events, including concerts, product launches, exhibitions, television productions and sporting events.

The other two parts mclcreate and Presteigne Broadcast Hire are currently challenged in turnover and profitability but both parts make up less than 20% of turnover.

The mclcreate a loss making division provides one stop shop for events in the UK operating from 5 locations. The Presteigne Broadcast Hire is an international supplier of equipment to broadcasters and is also loss making for first 6 months.

Today’s Results

Avesco plc released half-year results this morning. The initial reaction was a knock down in the share price by 8% to £1.95. Possible reasons could include that two small business parts of Avesco plc namely the Full Service mclcreate and Presteigne Broadcast Hire did not deliver in turnover or profit terms.

The company expects some improvement in 2^ndhalf of year due to RIO 2016 Olympic Games. These two parts represent less than 20% of company turnover and are a drag on the overall group performance. Break-even would be a good outcome for these two parts by the end of the financial year.

Creative Technology is the main turnover and profit driver for the company at circa 62 million turnover for first six months. The depreciation charge is enormous in audio/visual equipment area, that I wonder if the equipment is being written off too quickly and does have a residual value to generate future profits.

The once off gain of 7.7 million from the sale of Fountain Studios and the announced closure of the business by early next year was a definite positive. The Fountain Studios was a loss maker and the proceeds from the sale will reduce debt from £17.5 million down to £3.2 million. Obviously, some interest savings on previous borrowings in the second half should be expected.

Increased interim dividend by 25% to 2.5p is progressive. Net Asset Value increased from £1.80 to £2.30 per share is comforting.

Financial Highlights

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Carcosa

9th Jun '16

Avesco (LON:AVS) share price has remained in a range of 200-250p for the last 12 months. However, this is at a clear discount to other media and events stocks. Avesco is currently trading on an EV/EBIT of 5.9x in FY16e and 5.2x in FY17e, compared with 13.7x and 11.7x respectively for peers (EV/EBIT being a more relevant metric given the structurally higher depreciation on hire equipment). The share price is also now back at a discount to published 230p NAV per share post the Fountain sale

More at http://www.edisoninvestmentresearch.com/research/r...

Pretty much a PYAD share now

Dearg Doom

Hi Carcosa

Thank you for the link. As I suspected, earnings will be in the 20p - 25p for next few years with an increasing dividend with always a risk to the downside. Hence 8 times x 25p earnings = £2.00 is a fair share price. The market seems to have got it right.

Most interesting is the realisation that Avesco plc is only a very small player in this specialised area, way smaller than I had previously thought.

Perhaps for shareholders it is best to further simplify the business from the current three divisions down to one. That would leave Creative Technology on its own. At that point it would offer a simple bite size addition for one of the other big players to consolidate in a very competitive sector of the industry.

Regards

rhomboid1

Thanks for the post , I'd say the market is majorly undervaluing this business. I'd agree that the other divisions can be largely ignored, let's assume they just offset the remaining 3.2m debt and HQ costs which is a ludicrously crude and mean spirited assumption . But makes the sums easy!

So CT itself is the value, so looking just at that portion of the RNS :

"A combination of underlying revenue growth and the timing of events coupled with some favourable foreign exchange movements on the US Dollar meant that our main trading division, CT, saw revenues grow by 20% to £61.9m (six months ended 31 March 2015: £51.6m). Trading profit grew by £0.4m to £5.9m (six months ended 31 March 2015: £5.5m) with CTUS again providing the bulk of CT's profits, although CT London contributed significantly improved results and CT Asia Pacific was able to continue its progress as it works towards achieving profitability in the region. Our CT business in Qatar suffered however, with the effects of the current low oil price seeing a marked reduction in the number and size of events in the region although in contrast the Dubai office produced a much stronger performance. Despite pricing pressures, an increase in the worldwide demand for the use of LED products in shows and events has resulted in us looking to invest more in equipment than we had planned at the beginning of the year, thus enabling us to reduce sub hires and improve margins where we can."

So a c.£120m turnover business with profits of £12m in a growth sector and growing at 20% a year, obviously this at the pre tax level and tax in US is 35% so say £8m post tax, I'd put a PE of high teens on that and still be being slightly unkind, so that suggests a market cap of 100m plus rather than 40m today.! Stonking value here imho, and a c. 4.5 % + divi whilst we wait for the value to be recognised!

Done in haste with no envelope to hand so pls feel free to correct any errors!

Cheers

Hi Rhomboid,

RE Avesco (LON:AVS)

New bulls like myself have to recognise that it is previous old bulls of Avesco who are selling stock back to us. The old bulls realise the company is not forecasting 20% compound growth year on year, but rather steady erratic slow growth from year to year. Straight line growth is not on the cards. However for shareholders repeatable earnings year after year with reliable dividend increases is possibly what is on immediate offer.

Obviously a bid approach cannot be timed if it ever appears. There is no speculation about it either. The competition may simply let the economic cycle work through and buy it on a lower multiple of earnings.

I tried to listen and interpret the price action today. Price not rising on 53p+ eps as a headline (post sale of Fountain Studios) tells me that the story is somewhat over.

GreyInvestor

I've added to my holding today. In my view the current valuation is way too low. Yes, it's cyclical, lumpy and low margin but it's also profitable, backed by an excellent balance sheet, and the directors have a lot of skin in the game. A buy for me. A perfect target for a private equity buyer, in my view.

GavSmith01

The exceptional EPS gain was well flagged ahead of time and so its appearance in the results today would have had no impact on the share price. The shares were weak today because of the slight disappointment with mclcreate and Presteigne. Nevertheless, the outlook is very positive and I agree that we should be focussing on CT to value this stock. 8x with next to no debt in a growth area is not a fair valuation in my view.

Avesco plc - The Show Must Go On!

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Dearg Doom

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