The Week In Review: Aegis rides out slump in advertising
Saturday 12 March 2005
Aegis, the media buying and market research group, ticked all the right boxes when it announced annual results for 2004. It was another good performance from the company, adding to a five-year track record of revenue and dividend growth, despite the worst advertising recession in memory. That slump is over and 2005 looks like being another strong year, adding to 2004's 15.1 per cent increase in revenue to £747m and a pre-tax profit figure of £63.9m compared with 2003's £48m. The dividend has been raised to 1.45p a share, and like-for-like revenue growth was up 8.4 per cent. However, Doug Flynn is leaving as chief executive and is being replaced by Robert Lerwill.
Although he doesn't like people mentioning it, Lerwill was previously a senior member of the management team that saw Cable & Wireless brought to its knees. The fundamental strengths of Aegis have not changed, so investors should hold their shares. It is probably worth waiting to see how Lerwill performs before adding to shareholdings.
If you've got a sweet tooth, shares in Glisten, the confectioner, should have given you a sugar buzz over the past six months. Growth has come predominantly from small, bolt-on acquisitions. With obesity and eating healthily a growing pressure in daily life, cereal and energy snacks are becoming a popular alternative to chocolate bars. It also has a Fair Trade range. Buy.
Even though regulatory costs in banking have risen and markets have yet to recover fully from a downturn, Close Brothers, the banking group, demonstrated that it can still deliver solid results. Asset management was the star performer in its first half, driving 17 per cent profit growth in investment banking while the mainstream banking division struggled. Worth buying for the group's broad exposure to financial markets.
McCARTHY & STONE
McCarthy & Stone's formula, of building blocks of retirement flats complete with all mod cons, has been a licence to print money over the past decade. The company is confident of another decent year. Its shares have soared one-fifth since this column advised hanging on to them a year ago. But with a real risk that transaction volumes will slow, investors should lock in gains.
A spate of natural disasters made 2004 a bad year for insurers. Goshawk, the Lloyd's of London insurer, paid out $40m (related to the four hurricanes and 10 typhoons that hit Florida, the Caribbean, the Gulf of Mexico and Japan last year. That led to a $13m second-half loss that completely wiped out first-half profits and resulted in an annual deficit of $3m. Goshawk will not be paying a dividend and its strategy remains unproven. Avoid.
The construction company Carillion is enjoying good times. That is hardly surprising as it specialises in the Private Finance Initiative, through which this government has pumped billions of pounds. The company's order book stands at £5.0bn, with further "probable orders" of £2bn. Carillion reported an 8 per cent rise in annual underlying profits to £54.7m. The shares have done well but are still worth buying.
Investors with a taste for risk and who want to tap into the latest money-making opportunities in new technology need look no further than an investment fund that seeks to commercialise business ideas from British universities. The company's share price has soared since its float last year but it should be able to go on in the coming years and achieve further successes. Buy.
Hemscott. the financial information group has gone for broke in the US, where it bought two financial data groups in a complex deal that handed control of the company to the private equity firm Veronis Suhler Stevenson. The shares have yet to top the 55p that VSS paid for its majority stake and until Hemscott can assure investors it hasn't bit off more than it can chew, look unlikely to do so. Avoid for the next 12 months.
On top of a handful of Richoux restaurants Gourmet Holdings now has six pub-restaurants that go by the name of Bel and the Dragon. It will spend the next six months sprucing up all of its sites. The group has pledged to double the number of its Bel and the Dragon sites and should have enough cash to do so. A risky buy.
ROYAL & SUNALLIANCE
The reshaped Royal & Sun-Alliance insurance group has bounced back with better-than-expected profits, a general stabilisation of premium rates and plans to further scale down its troubled US business. After a rough few years for shareholders, things are starting to look up for the pure general insurer. RSA is delivering better results but some major risks remain. Hold.
Profit up and debt down for TNS
Not content with bombarding Western consumers with ever more varieties of "new improved" shampoo, chocolate, cigarettes and soft drinks, consumer goods companies have moved deeper into the new markets of the developing world. This is good news for Taylor Nelson Sofres (TNS), which provides the sort of market research that companies rely upon when entering new markets or trying to come up with new products.
The market research sector enjoyed phenomenal growth in the 1990s, as its services were snapped up in the booming corporate spending of that decade. Even in our more restrained times, growth in this sector of the media industry looked considerably more healthy than prospects elsewhere. Underlying revenue growth was 4.1 per cent higher or 17.4 per cent in absolute terms after TNS enjoyed the first full year as owner of NFO. Operating profit was up 28 per cent, operating margins increased and debt was down. It reckons that the market will grow at between 4 and 6 per cent in the medium term, driven by expansion in emerging markets.
As a specialist in this sector, TNS does not suffer the distractions and conflicts of interest of some of its rivals that are part of bigger media groups. An attractive business, but at 236.5p, the shares already trade on a forward multiple of 17 times, which means that further upside is limited. Hold.
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