Bottom Line: Avesco shows some cheek

AVESCO's rights issue is cheeky to say the least. The television services support company wants shareholders to cough up pounds 12.1m.

In return, the company predicts it will lose pounds 1.5m for the year ending today and there will be no dividend. It lost pounds 2.2m last year and paid no dividend. Yesterday, Avesco's chairman Richard Murray said there was no prospect that the company would pay a dividend next year either.

Primarily Avesco needs the cash to reduce debt. However, the launch of the rights issue yesterday was somewhat clouded by news from its most exciting subsidiary, Videologic.

Videologic is the real attraction for investors, as Avesco is more than eager to point out. Avesco shares have quadrupled in value during the past two months as the market learned of the promise in Videologic. The subsidiary is developing the electronic transmission of television pictures - it is enabling personal computers to accept pictures and allow users to adapt their use for many different purposes.

It now appears that the Videologic subsidiary, bought for pounds 6m four years ago, is worth considerably more than Avesco itself. Before the Videologic bandwagon got rolling, Avesco had a market capitalisation of pounds 12m. It is now worth pounds 59m. You can attribute most of the increase to Videologic, and may assume that the subsidiary is worth at least pounds 45m.

Avesco needs the rights money to put the whole group on a stable enough footing to allow a de-merger of Videologic. If the de-merger happens before the end of 1994, Videologic executives will earn some choice bonus payments.

Avesco executives said yesterday that the investment it was asking for is definitely not for widows and orphans. Others should also be wary.