Compilation CDs may not be the fashionable end of the music business but they are doing wonders for Air Music & Media, which recently graduated from Ofex to Aim. With lots of cross-selling opportunities open to it, Air Music is worth picking up after the recent weakness in its share price.

Air Music draws on a vast catalogue of music and film rights to produce budget CDs and DVDs of the sort that greying dads might pick up in supermarkets or at train and petrol stations. Most cost less than £5. They are also sold internationally through the firm's own multi-lingual sales force.

Usually bundled together in compilations, the CDs and DVDs tend to be bought by customers on impulse. That gives the business a certain resilience. Unlike many of the big names in the music business, Air Music is pretty much immune from industry problems such as web piracy.

Its prospects have not been reflected in the price of late. Having reached a 52-week high of 10.25p last November, the shares have come back by a third. That is probably down to profit-taking by those who took shares in placings last autumn at 7.5p.

The first-half numbers to 30 September (posted in November) were excellent. These showed doubled sales of £5.7 million. Profits before tax, interest and goodwill more than doubled to £806,000.

The figures were enhanced by good contributions from two acquisitions: Legacy Entertainment, a Toronto-based business operating across North America that was bought in 2001; and Hollywood DVD, bought at the end of 2002 to take Air Music into the fast-growing DVD arena.

Air Music's latest acquisition, Original Record Company, which trades as low-price CD label New Sound 2000, was only completed last October. It was this deal that prompted two share placings that raised just under £2 million.

Entrepreneur John French, who chairs the board, is enthusiastic about the acquisition. 'It is an excellent deal,' he commented recently, 'giving us a dual brand. We can utilise our existing catalogue through them and also sell our DVDs through New Sound.' As well as having what should be a beneficial effect on earnings, the deal removed a major competitor in the budget CD market.

French put out a trading update towards the end of March, stating that Air Music was performing well, that all subsidiaries had met targets, and that forecasts for the year to 31 March 2004 would be met.

House broker Seymour Pierce predicts a profit before tax and goodwill of nearly £1.9 million on over £13 million of turnover. That compares with a shade over £1 million last year on sales of £8 million. For 2005, profits of £2.3 million are being mooted.

Air Music is trading strongly and generating good cashflow. Air Music's market is growing, but its own growth should be helped by exploiting obvious cross-selling opportunities within the group.

Serial Aim player French is a tireless operator, and remains on the hunt for deals that will take Air Music into new markets – such as budget computer games. Before Christmas, he treated himself to a slug of shares at 8.25p. With the shares selling for barely ten times earnings, it is worth following him in.

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