Avesco released their third quarter results today, and they certainly didn’t disappoint. The underlying growth story remains firmly intact, and in my opinion this is still a hidden gem.
Whilst the final results will give a clearer and fairer picture of progress, the nine month comparatives point towards a company that is steadily growing organically and has a very bright future.
Trading profit for the nine month period virtually doubled from £1.7m in 2010 to £3.2m this year, whilst the operating profit of £2.8m has increased more than four-fold. Diluted EPS comes in at 6.1p with an adjusted figure of 7.9p.
The nine month figures also appear to indicate another slight improvement in margins to around 34% (about 33% last year).
Clearly, the company has achieved significant growth this year which is even more impressive given that last year they benefitted from the Shanghai Expo, the Football World Cup and the Winter Olympics.
If you dig a bit deeper into the report, you will see that all three divisions (Creative Technology, Full Service and Broadcast services) were profitable. CT and FS are the most indicative of the underlying progress since they are less dependant on the major events; both produced a significant uplift in profitability, with CT producing a 21% increase in revenues and a 120% increase in operating profits. Broadcast services benefits the most from the even year effect, and will almost certainly show a huge uplift in revenues and profitability next year.
Ian Martin the Chief Executive commented:-
“The Avesco Group enjoyed another period of strong growth during the nine months ended 30th June 2011, with further progression in revenue growth and profitability.
Looking towards 2012, we expect to benefit significantly from the “even year effect”, notably with the inclusion of business generated from the European Football Championships and the London Olympics. In addition, we have a full 12 months’ contribution from a number of multi-year projects that we have begun during 2011”
I have highlighted the last sentence since this appears to be something I wasn’t personally aware of, but which looks significant.
It is amazing to think that Avesco is still valued at a 24% discount to its tangible net asset value which currently stands at £1.50 per share. The possible payout from Disney is approximately £1.40 per share.
Essentially this profitable and growing business with revenues well in excess of £100m is being accredited with having no value (apart from its assets). It must still be one of the most undervalued companies on the market.
In other updates, Zetar’s Finance Director has bagged himself £20,000 worth of shares in the company at prices around the £2.50 mark.
DCD Media appear to have secured their short term future, with the help of one of their major shareholders, through the issue of convertible loan notes and Subscription Shares. Existing shareholders will see their holdings significantly diluted. Taya Investments, another major shareholder, are noticeable by their silence. Taya were once rumoured to be a possible bidder for DCD Media. They don’t strike me as a company that would be happy to see their 20% stake significantly diluted by this funding proposal. This story may yet have further to run?
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