Growth and dividends through turbulent times

“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).