“Personally
I think that the London Stock Market is about to enter one of the longest bull
runs in living memory” is the bold statement I made in my last post. Of course
I have no idea really, and I’ve never met anyone who can accurately predict the
future gyrations of the Stock Market, although it won’t stop many of the so
called experts having a go.
One
consideration to ponder though is where else are you going to put your money
for the next few years to get a decent return? Savings account, property, gold…..?
None of these appeal to me.
At the same
time, there are a number of companies that have prospered despite the economic
turmoil, and pay a very decent dividend yield. It’s food for thought.
Let’s take
one of my favourites – Avesco. It’s a company that is sensitive to economic
conditions, but despite a less than ideal world economy (note the
understatement), growth has been impressive. 2012 always promised to be a good
year for Avesco because of the London Olympics, Diamond Jubilee and European
Championships. In their recent interims they appear to be on track in achieving
an impressive set of figures, and underlying growth bodes extremely well for
the future.
Without
going through all the details, the key features of the report (for me) include an
improvement in margins over the 3 months from Jan- March. During this period
last year, margins were 34% (2011) and now they are 37.5%. The 8% increase in
revenues over this same period coupled with the margin improvement has had a
dramatic effect on the bottom line taking them from a loss of £186,000 in 2011 to
a profit of £1.6m. The sixth month improvement is equally impressive, and the
even year effect hasn’t even kicked in yet. Analysts’ predictions of an EPS
around the mid-teens look very conservative to me.
As a long
term holder what also caught my eye in the report was the following statement,
“We have come a long way over the last few years and these results reflect that progress. In the past we have placed greater weight on organic growth and building a truly international business in order to create long-term value.
With our international platform now more developed, the Board believes that the future emphasis should be turned towards increased profitability and free cash flow.
The Group's operations are inherently cash generative and, after the major capital expenditure programme in 2012, we believe that we can continue to develop the business with a reduced level of investment. With improved profitability, combined with more modest capital expenditure requirements, Avesco is expected to generate surplus cash, which should enable funds to be used for debt reduction or to be returned to shareholders.
We believe that the successful execution of this strategy will optimise the financial performance of the operating business and enhance shareholder value.”
Avesco have
re-introduced healthy final and interim dividend payments, and it looks like
these are set to continue and increase.
The outlook
statement is extremely encouraging.
When the
world economy does fully recover, and it will eventually, a shareholding in Avesco
appears even more enticing.
N.B. Also not
forgetting that Avesco have net tangible assets of £1.46 per share, and may
receive a pay-out from Disney of £1.40 per share (Disney’s appeal is due in the
ninth court of appeals this summer).
