Media Matters, by Les Copeland

If you watched Tim Henman on Henman Hill during his brief appearance at Wimbledon, the British Lions on the big screen at Twickenham or the Royal Ballet in London’s Trafalgar Square, chances are you were enjoying audio and visual equipment installed by Avesco, one of the leading international suppliers of broadcasting and entertainment equipment to a range of sectors and industries.


Those with long memories (a necessary asset in the small company investment game) will know that this company has had a presence in one form or another on the London Stock Exchange since 1988. In 1994 it sold its manufacturing businesses and completed the de-merger of Video Logic in 1994. Ten years later, Avesco de-merged from its (none too spectacular) investments in Complete Communications and Medal Entertainment & Media, conducted a restructuring exercise, and launched onto AIM. Since then, its star has burned brightly.


Says chairman Ian Martin (who joined as a non-executive in 2002): ‘We have enjoyed relative success since joining AIM. Despite restructuring, we have pushed turnover up almost ten per cent to £58.9 million, posted profits of £0.5 million against considerable losses last time, and, if you put net capital expenditure to the side for one moment, we produced net cash inflow of £9.3 million. Not bad I’d say.’


Profitable everywhere

What Martin remains most proud of though is the fact that in every region the group operates in (UK, USA and Europe), its operations are profitable, growing and strategically placed.


Creative Technology, a supplier of audio and video staging services for live events (its most high profile was the last Oscars, where it built a huge television screen into the stage), is the market leader in London, California, Chicago and number three in the market in Germany.


MCL, Avesco’s vision, sound and lighting supplier to the corporate presentation market, is the leader in the UK while Presteigne, a supplier of broadcast equipment to studios and outside broadcasters, has a leading position in Britain and a potentially profitable toe-hold in Germany.


Says Martin: ‘The key to this game is to deliver great services to clients, retain creative intelligent staff and invest sufficient amounts in the business to always be on the cutting edge of technological developments. And of course, you need to have a vice-like grip on costs.’


This careful control of costs enabled Avesco to reduce debts from £8.3 million to £7.8 million, despite spending £8.8 million on capital expenditure.


New markets to gun for

In the short-to-medium-term Martin expects strong competition, but ‘corporate profitability’ should provide growth opportunities. He is also expecting great deeds from start-up ventures in Las Vegas and Germany. However, what gets him really salivating is the industry-wide move to high-definition equipment. The market is slowly moving in this direction and Martin – and chief executive David Nicholson – are positioning Avesco as the leader in this field. By the time of the Beijing Olympics in 2008, the high-definition broadcasting market could be worth £250 million. ‘We intend to grab as much of this as we can,’ claims Martin.


For the full year, house broker KBC Peel Hunt expects profits of £1.9 million (£0.5 million) on sales of £60.5 million. Analyst Dominic Convey advises that, ‘following a period of heavy investment, we expect the group to generate significant free cashflow over the next two years.’ Convey reckons debts will drop to a mere £4 million by 2007, when profits of £2.3 million are expected. The current 92.5p share price (market cap £15.09 million) puts the group on a paltry forward p/e of 9.7 times. Avesco deserves a better rating.