Small Talk: Creston's steep fall should be followed by upturn

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The Independent Online

Investors commonly assume that when there is a recession, the first part of the budget to get slashed is marketing. That might have been true once, but it is certainly not the case nowadays countless studies have proved that companies wanting to ride out economic downturns should maintain their advertising and marketing spend.

That misconception can be the only reason behind the steep decline in the value of Creston. The shares were trading north of 200p a year ago, but by last Thursday's close were languishing at under 90p. However, in light of Friday's bullish first-half numbers, investors with a taste for risk could do a lot worse than pick some of the shares up at these depressed levels.

First-half numbers were encouraging: pre-tax profits doubled to 3.9m, despite most of the company's business coming in the second half of the year, on the back of revenue jumping by nearly 25 per cent to 39.2m.

While some smaller companies may cut their advertising and marketing budgets over the next year, Creston's blue-chip client list should give comfort to investors. New wins in the first half include Capital One, Freeview and Alton Towers, while existing clients including Alfa Romeo, Bayer and BT extended deals. Cross-selling between some of Creston's 13 units resulted in wins from AstraZeneca, Canon and Ebay.

Although Creston is far from immune to a corporate spend downturn, its client base and lower reliance on single accounts (GM is its biggest client, generating 6.5 per cent of total group revenue) means that the shares deserve to trade on a premium to the sector. However, based on house broker Investec's forecasts, Creston trades on just 5.2 times forecast 2009 earnings. Although it's perhaps an unfair comparison, the sector heavyweight WPP trades on over 12 times 2009 forecasts. Creston has some quality brands under its umbrella, and the shares look to have been oversold, to put it mildly. Small Talk's advice? Fill your boots.

Mixed signals for IVA investors

Contrasting newsflow from IVA companies last week: Debt Free Direct (DFD) confirmed that it has reached "accreditation ready" status following a review of its operations by TDX, the specialist audit group formed by creditor banks; meanwhile, Accuma revealed that takeover talks have been terminated. Clearly, despite what has been a hideous year for the IVA market, some companies are in better shape than others.

The review of fees and accounting practices by TDX is good news, even if it didn't lead to a surge in DFD's share price. Basically, it sets out the fee structure going forward to the satisfaction of all parties, and allows analysts to pencil in some forecasts that are based on more tangible parameters. As one analyst said, trying to put a value on these companies has been like trying to pin jelly to the ceiling.

For DFD, the ruling puts it at the head of its sector. Its market share is something like 28 per cent, and although the number of approvals has fallen with the uncertainty surrounding the industry, the number of people facing huge debt problems has not exactly shrunk. One major high-street bank is already referring its IVA applications to DFD.

Given the credit crunch and projected falls in house prices and the increasing difficulty in remortgaging property, the sad reality is that IVAs are likely to remain an attractive choice for some debtors. DFD can at least look to the future with more certainty than at any point in the last year, and the TDX ruling gives it and its shareholders a firm base from which to take the company forward.

The same cannot be said for Accuma. Its shares have been the worst performer in the sector over the past year, losing more than 90 per cent of their value since January. The end of offer talks hardly knocked the shares back with losses like that, most investors have written the stock off anyway.

But if the company cannot find a buyer at these levels, even with the hope of the same accreditation from TDX, its future prospects cannot be much less bleak than the last year has been. For investors, there look to be fairly limited choices but for our money, it is very clearwhich stocks are likelyto prosper.

Armor Designs ready to face flak

In light of the grim warning last week from the private security forcesprovider ArmorGroup, it is a brave move to bring a company with almost exactly the same name to the market. But should Armor Designs face some flak, at least it ought to be in the position to protect itself a little better.

The company, which is seeking to raise $16m (7.8m) of new capital prior to listing on Aim, designs and manufactures composite armour products. After the float, the Arizona-based group is expectedto have a market capitalisation in the region of $260m.

Armor claims that its products differ from others on the market thanks to its patented "volumetrically controlled" manufacturing process, resulting in lighter, more comfortable protection than other products. Its products are not just aimed at military customers its kits have also been tested on vehicles, and the company hopes to sell its armour to anyone wishing to customise a vehicle against attack. Perhaps the next England manager should be interested.

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