Companies: BQS    CSG    FWUK    ISG    MRN    TEF   

London’s rather bitter battle between Boris Johnson and the incumbent Ken Livingstone brought up all the old disputes regarding the merits of the Capital’s decision to bid for the 2012 Olympics. Livingstone’s recent admission that

he knew the original 2012 budget was an underestimate, as well as subsequent cost overruns, have given critics all the ammunition they need to pour scorn on the merits of the Games.

Nevertheless, last month, prime minister Gordon Brown and newly elected London mayor Johnson visited the Olympic Park site in London’s East End, to witness the early start of construction on the Olympic Stadium site, a process that will accelerate over the coming year. The East End will be the focus for the Games, with the Olympic Park at Stratford, one of the best-connected public transport centres in the world, housing the new sport venues including the innovative Olympic Stadium, at the south of the Olympic Park on an island site with waterways on three sides. After the Games, the area will be transformed into the largest urban park created in Europe for more than 150 years.

As well as regenerating one of the UK’s most deprived areas, the economic and new business benefits of London hosting the event are undisputed, with the construction of new venues, infrastructure and transport links already creating opportunities aplenty for companies across an array of sectors.

Recent research from employment agency Adecco revealed that, of the contracts placed so far by the Olympics Delivery Authority (ODA), 98 per cent of the work has gone to UK companies, with 50 per cent of them located outside the capital. Furthermore, its survey of more than 1,000 employees of both FTSE and non-FTSE companies found that half of the companies surveyed see some benefit to their business from the 2012 Games. Fifteen per cent of businesses are involved in working with the Olympics in some capacity, 24 per cent see the potential for marketing opportunities as a result of the Olympics and a further 15 per cent are speculating that they will be involved at some point.

ISG – already on its bike
One venture already involved is Interior Services Group (ISG), the construction services specialist which will be doing its bit to help our cyclists go for gold in 2012, having been awarded the contract to build a 6,000-seat velodrome in the Olympic Park. This will host the Olympic and Paralympic indoor-track cycling events, alongside a BMX track for Olympic events. Construction begins in early 2009, deliverable within an overall ‘VeloPark’ budget of £80 million.

While ISG, led by chief executive David Lawther, has not disclosed financial details, there is no doubt this contract represents a tremendous boost for the company, which has a good reputation for delivering new-build, refurbishment and fit-out projects (such as the remodelling of the Royal Festival Hall) and was responsible for replacing the track at the Manchester Velodrome which, incidentally, led to the British team securing nine gold medals at the recent World Cycling Championships.

Despite this, shares in ISG are out of favour with investors at the current 189.5p, down from a 52-week peak of 359.5p, which likely reflects associations with the current challenges of the UK commercial office and retail fit-out markets in the wake of the credit crunch.

However, investors seem to be overlooking recent diversification in terms of sector and international geography, as well as another set of record results for the half to December, with pre-tax profits increased by 55 per cent to £6.3 million. Closing the half with £22.1 million cash, ISG increased the interim dividend by more than 20 per cent to 4p and, based on forecast earnings of 36.6p and 40.5p and dividends of 12.98p and 14.17p for June 2008 and 2009 respectively, its shares should not be ignored, changing hands for only 5.2 and 4.7 times earnings and offering a yield of around seven per cent.

Freshwater – in great shape
The acquisitive public relations firm Freshwater UK, which joined AIM last July with a £4 million funding at 85p, has been involved with the 2012 Games from the ground up.

As business development director John Underwood explains, ‘A few years back, we did some high-level work with the bid team when they went to Singapore and won. We were the bid presentation trainers and we helped the likes of Lord Coe (London 2012 chairman) and Livingstone prepare for the bid.’

He adds: ‘This has been a door opener for our company and Olympic connections come in a very strange and unexpected kind of way.’ Freshwater, whose operations span PR and marketing communications, is now seeing tangible business benefits and cross-selling opportunities across its divisions, as clients seek to maximise earnings potential from the Games. ‘It is not just to do with sport,’ says Underwood. ‘There are housing development, shopping and retail opportunities for companies that are really on their toes and have their eyes open.’

Not that Freshwater is all Olympics-related promise and puff – first-half financials to February showed pre-tax profits increasing by 50 per cent to £460,000, on turnover up 54 per cent to £4.1 million. Analysts point out that this company, one of the UK’s fastest-growing PR consultancies, offers resilience through significant exposure to clients in the public sector as well as defensive sectors such as transport and utilities. Down from a 114p AIM peak, the shares look oversold on a prospective price-to-earnings ratio of 8.6 times, based on forecast profits of £1.5 million and 8.44p of earnings for the year to August.

Telford’s ‘golden triangle’
With the credit crisis causing uncertainty in the housing market, dividend-paying residential developer Telford Homes represents a robust Olympics-related play based upon the regeneration of East London, where the focus of the 2012 Games is via the Olympic Park, which will house the new sporting venues.

Chief executive Andrew Wiseman says Telford is focused on a ‘golden triangle’ between the City, Canary Wharf and Stratford, while its strategy of pre-selling homes at an early stage in the development process leaves it well placed.

‘The key for us is not the Olympics themselves,’ says Wiseman. ‘It is all about the transformation of a grotty area into one of the best parts of London.’ Noted for its work on regeneration projects within public sector partnerships, Telford is enjoying strong sales across a number of developments and its long-term prospects are strong, based on demographics, with demand for homes continuing to exceed supply.

‘We are in the sweetest spot there is,’ he enthuses. ‘There’s more than enough to keep us busy for the foreseeable future.’ Based on Telford’s recently announced 30 per cent profits increase to £17.7 million for the year to March, and an increased total dividend of 10p, the 129p shares, lowered from a 52-week peak of 409.5p, should reward over the long term.

Surveyors offering quantity and quality
Several ventures vying for a share of Olympic-related spoils are found in the quantity surveying space, a fragmented market but one also sporting defensive characteristics based on construction-related demand in the run-up to 2012.

Profitable earnings streams and strong order books are in evidence at long-time GCI favourite Driver Group, as well as two relative AIM newcomers, Cyril Sweett and Baqus, both trading below their respective 110p and 10p issue prices. Everything appears to be proceeding to plan at Baqus, which reported a tenfold jump in profit before tax and exceptional items to £440,000 for the half to December and proposed a maiden dividend of 0.05p.

Larger peer Cyril Sweett, a global property and construction consultant, which listed in October to assist its consolidation push, is on target to grow into a £100 million turnover business by 2010. Boasting an order book worth around £85 million and operating as far afield as India and the Middle East, it recently treated investors to a 23 per cent pre-tax increase to more than £2.5 million with its maiden interim figures as a public company.

More to come from Morson
Meanwhile Morson Group, recently profiled on these pages at 143.5p, looks another sure-fire beneficiary of Olympics-related momentum based upon ongoing demand for the technically skilled temporary and permanent staff it supplies to, among others, the building and construction sectors.

Last year was yet another strong one for the company, which increased pre-tax profits to £10.8 million (£9.5 million) and lifted its total dividend to 5.8p (4.5p). Analysts are looking for profits progression to £11.6 million this year and then £12.4 million by 2009, giving earnings of 17.9p and 19.2p and placing the shares, now 167.5p, on modest prospective multiples of 9.4 and 8.7.

In media, one that might benefit over the longer term is transformed AIM counter Avesco, the broadcast equipment and technology group already involved in the Beijing Olympics and the Euro 2008 football championship. It recently acquired Charter Broadcast in a keenly priced deal expected to enhance earnings immediately. As well as boasting long-standing ties within the television industry, Charter Broadcast has supplied broadcast equipment to many sporting events including previous Olympics and the World Cup. At 74p Avesco, forecast to deliver profits of £5.2 million and 16.6p of earnings by September 2009, trades on a multiple of 4.5 times for next year and could reward if Olympic pitches go its way.