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A welcome year-end trading update sees FY revenue and profit estimates upgraded and our target price raised (again).
Avesco Group
Avesco* (AVS): Still offering potential (CORP) | Trakm8* (TRAK): Exciting order growth but FX hit anticipated (CORP) | OneView Commerce* (ONEV): Upbeat AGM statement (CORP) | Joules Group (JOUL): Raising price target, maintaining Buy (BUY)
AVS TRAK JOUL ONEV ONEV
Avesco’s trading update outlines continued strong trading over the summer at Creative Technology in the US and at the Rio Olympics and Paralympics. FY16 results (to end September) will be “comfortably” ahead of previous expectations. Positive momentum continues into FY17, when a good schedule of sporting and commercial events, along with currency benefit, will buoy what would normally have been a weaker, odd-numbered year. With a rising dividend and asset backing, the valuation multiple remains very modest, despite the increase in the share price on this news.
Group earnings quality continues to improve as a result of restructuring, and involvement in the Rio Olympics will help H2. Post the Fountain Studios property sale, the balance sheet is strong with modest net debt. The shares are trading below NAV with earnings and dividends on an upwards trend.
A good H116 from Creative Technology, particularly in the US, underpins our maintained profit forecast for the full year. Avesco’s FY14 restructuring is clearly delivering on the promise to smooth results between odd and even years, while the recent sale of Fountain Studios has realised cash to pay down debt and increase targeted investment in equipment. With a progressive dividend, a discount to net assets and a very modest multiple, the group is an attractive and coherent investment proposition.
FY15 results were ahead of forecasts, with particularly strong performance from Creative Technology (CT) in the US and with CT Europe getting a boost from the European Games in Baku. FY16 should benefit from the UEFA European Championships and Rio Olympics. Growth of corporate revenues and the migration of Presteigne to dry hire only are helping to even out swings between odd and even years, with the ‘odd’ FY15 outperforming previous ‘even’ highs. The Fountain Studio sale will further bolster the balance sheet, supporting investment to grow CT and a progressive dividend.
The sale of the land and buildings at Fountain Studios releases £16m of capital, transforming Avesco’s balance sheet, increasing year-end NAV of 180p by 31p and in the process allowing investors to concentrate on value latent in Creative Technology which last year produced a trading profit of £9.1m. Forecast gearing will drop to below 10% from 50%, and while no cash return or special dividend is forecast, the financial standing and longterm dividend paying prospects of the group are much enhanced. We raise our TP to 250p and expect this to advance with earnings as the benefits of restructuring and growth at Creative Technology feed through.
Avesco*: The X factor (CORP) | Ithaca Energy: Operational update and 2016 outlook (BUY) | Ncondezi Energy: Agreement with Shanghai Power signed (BUY)
Avesco Group Solgenics Ltd
Avesco is benefiting from group restructuring and growing corporate demand for its services, especially in the US. We have upgraded our 2015 PBT estimate by £1.2m to £5.2m and our 2016 PBT estimate by £1.4m to £6.5m as a consequence. A high tax charge constrains EPS to 16.2p for 2016 but prospects of a normalising rate thereafter, a pattern of earnings upgrades and NAV of 180p, support 200p as a realistic price target.
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