Companies: CVSG    FAN    OMG    REH   

First Artist Corporation should win new fans, says James Crux
My 2008 tip is First Artist Corporation, seriously transformed yet trading on a ludicrously low valuation and sure to win fans in the year ahead. Acquisitions have transformed the company from a ‘lumpy’ football agency into a low-risk and strongly cash-generative media, events and entertainment management counter with a broad revenue base, although First Artist remains a ‘sexy’ business with clients ranging from soccer icon Ruud Gullit to dieting guru Gillian McKeith.

Three years ago the bulk of revenues were football based, whereas today almost 90 per cent of sales are wrought from media, non-football entertainment and event management services. Full-year figures to August showed a 400 per cent sales surge to £48.6 million and profits up 80 per cent to £2.7 million, with key 2006 acquisition Dewynters (giving First Artist the dominant role in UK theatre and cinema marketing) driving much of the growth.

Jon Smith, chief executive, is delighted with Dewynters, which offers everything from print and digital marketing to the delivery of programmes and theatre displays. Recent West End work includes Equus and Lord of the Rings, while the agency is tapping into US theatreland via New York and Las Vegas offices. ‘It is proving a fantastic cash cow for us,’ says Smith, adding that ‘Dewynters has proved a fantastic little find and has just had its best year yet.’

For 2008 and 2009, forecasts point to profits of £3.6 million and earnings of 17p (15.7p), ahead of £4 million and 18.6p. Those estimates place the shares on a forward multiple of 5.4, falling to 4.9 next year, which looks ridiculously low given growth rates, cash flow characteristics and First Artist’s new revenue resilience. Buy.
Ticker: FAN Share price: 92p Market cap: £12.4 million 52-week high/low: 117.5p/61.3p Forecast p/e: 5.4

Profit from Renewable Energy Holdings, urges Oliver Haill
My yuletide choice is a relatively cautious play in the renewables sector, with an electrifying new technology on top – for free! Manx-based Renewable Energy Holdings (REH) has adopted quite a careful approach, launching its operations with a lower-risk wind project in the ‘wind-friendly’ regime of Germany, with a landfill gas site in Wales added not long after.

Expansion is now gearing up, after an £8 million placing and the granting of a a135 million (£97.2 million) facility with Standard Chartered bank. REH’s wind operations are expanding, with new, larger projects due to begin in Poland in 2008 and in Wales for 2009, which are both more profitable markets than Germany.

REH chief executive Mike Proffitt asserts that ‘by the end of next year we’ll be three times bigger than we are now’ – and that’s still not including the company’s wave-power technology, Ceto. Put simply, this device sits on the sea bed and pumps water to land-based generators, making it much less risky and much more economical than rivals. After years of development, two commercialisation deals were signed this year – with Australian Group Carnegie and French utility giant EDF. ‘This has completely de-risked Ceto,’ beams Proffitt, who says the first commercial sites ‘are not
a distant thing’.

House broker Panmure’s valuation of wind and gas projects of 65p means that not only is the company undervalued, but investors get access to Ceto for free.
Ticker: REH Share price: 54p Market cap: £33m 52-week high/low: 57p/34.5p Forecast p/e: n/a

CVS Group looks healthy, says Robert Tyerman
Whatever economic damage the financial mayhem of the recent past has caused, people, especially the British, will still find money to spend looking after their pets, without haggling too much over the vet’s profit margins. Staff cost less than in human care, as do equipment and premises, while malpractice suits are rarer and regulation lighter.

All this offers encouraging long-term prospects for this highly fragmented sector and particular opportunities for recently floated market leader CVS Group, which came to AIM in October with a £92.7 million float at 205p and is adding a vigorous acquisition programme to the organic growth mix. Headed by chief executive Simon Innes, the former Vision Express boss, CVS made £2.3 million pre-tax in the year to June. House broker Panmure Gordon expects that to double in 2007-08, with £7.7 million pre-tax on the cards for the following year.

CVS, showing four to five per cent annual organic revenue growth, is pushing up margins healthily and has shown it can enhance the profitability of the smaller veterinary practices it acquires. It recently made its first post-float takeover, Manchester-based Petmedics, a 14-vet practice earning £244,000 a year. But, even as leader, the company still has no more than three per cent of a market with nearly 4,000 surgeries.

Innes, who built spectacles retailer Vision Express into a £220 million turnover business before it was taken over, intends to exploit this situation, helped by the fact that there are usually several people wanting to sell out and CVS is frequently the only buyer. The veterinary business is a good cash generator and is not capital intensive, so returns should be encouraging.

At 242p, the price to earnings ratio falls from an extravagant-seeming 68 historic to around 20 times for 2008-09. As a powerful niche player, CVS could be well worth it.
Ticker: CVSG Share price: 242p Market cap: £125m 52-week high/low: 264p/218.5p Forecast p/e: 20

Leslie Copeland highlights OMG – a small tech play about to go large
Among the chief executives I’ve met this year, I’ve easily been most impressed
by Nick Bolton of OMG, a venture providing sophisticated ‘image understanding’ products for the entertainment, life science, defence and engineering industries.
Unlike many of his peers, Bolton is funny, engaging, intellectual and often visionary, adopting a sober tone only when delivering his firm’s financials – the last set showed turnover up 20 per cent to a record £19.6 million and pre-tax profits up £1.84 million (also a record).

Bolton is also a team player in word as in deed. At my last meeting it was a divisional director who did most of the talking about the company – a rare event in these days of egomaniacal CEOs and overbearing finance directors.

But the most impressive thing about Bolton is the way he has used his firm’s cutting-edge technology in core areas as the launch pad for other, more daring initiatives – without sacrificing the bottom line.

OMG’s core business is Vicon, which provides motion capture technology to the film, computer games and life sciences market. Stable, growing and still innovative, it accounts for the bulk of sales and almost all the profits.

The technology of this arm has been leveraged into the defence sector via a division called AIG. In essence, it has products to enable unmanned aircraft to better track targets. Deals worth around £0.5 million from the MOD have been bagged.

The technology has also been used to create a digital mapping venture division called Yotta. This arm bought DCL, one of the UK’s largest highways surveying businesses (and a profitable one to boot). So now, DCL will profitably conduct surveys of roads and motorways for highway agencies, local authorities and infrastructure management groups – and simultaneously capture vast mapping information for the potentially explosive Yotta arm.

The next year is likely to see Vicon outperform as usual, DCL progress and the other two gather pace. At the current 60.5p (market cap £38 million) the market continues to value the speculative businesses at nothing, and value the other market-leading ventures conservatively. Oh, and OMG also has a cash pile of £6.2 million. Buy.
Ticker: OMG Share price: 61.5p Market cap: £38.65m 52-week high/low: 68.25p/44p Forecast p/e: 18