The Investment Column: ITE exhibits ideal qualities for a play on emerging markets

Irn-Bru maker holds a recipe for growth; No need to cash in yet on WH Ireland
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The Independent Online

ITE Group is the company behind the MODA UK spring clothes exhibition due to run this week in Birmingham. However, exhibitions in the UK account for just 10 per cent of ITE profits these days. The group is now firmly focused on emerging markets and that is what makes it interesting from an investment point of view.

The former Soviet Union and Eastern Europe account for more than 80 per cent of profits at the firm, with Russia generating the lion's share. This part of the world has enjoyed strong economic growth over the past five years thanks to buoyant commodity prices and some structural reforms. The exhibitions industry is well positioned to benefit from such trends and given that ITE is a leading player in these territories it has done particularly well. From being loss-making in 2002, the group registered a £23m profit in 2005.

As business models go, ITE's seems relatively easy to understand. It simply rents a conference centre to host one of its events - usually they have titles such as The Kazakhstan International Oil & Gas Conference - and then charges both those who exhibit and those who attend the event. Profit margins in the sector tend to be high and once an events organiser has built up a good brand, cash flows are impressive. Last year ITE generated £24m of free cash flow and it returned all of this to its shareholders by way of a share buy-back programme.

Yesterday's trading statement indicated that the company should have little trouble repeating this performance in 2006. Although this reassured the City, having registered a 17 per cent rise over the past three months ITE shares are unlikely to make further progress until the company once again starts to upgrade its earnings forecasts.

However, given the growth the group's major markets are enjoying at present - the economies of the former Soviet Union are forecast by the International Monetary Fund to register 5.7 per cent expansion this year - this should materialise sooner or later.

In the meantime, ITE is also busy investing for its future by establishing operations in such places as China, Iran and Mongolia. For anyone looking to benefit from emerging country economic growth, ITE should be a core holding.

Irn-Bru maker holds a recipe for growth

The drinks maker AG Barr claims that only two people know the recipe for Scotland's most famous drink and renowned hangover cure, Irn-Bru. The ingredients of the orange concoction have remained a secret since Glasgow's Barr family started making the drink in 1901. Even when Robin Barr, now the chairman of AG Barr, handed over the chief executive post to Roger White at the beginning of 2004, he did not pass on the magic formula and remains one of the two people who know it. The identity of the other person has never been revealed for "security reasons".

In light of the mythology, AG Barr's launch of a new Irn-Bru drink yesterday, branded as Irn-Bru 32, should give the company a further boost. It is the first major extension of the Irn-Bru brand since a diet version entered the market 26 years ago and will be on sale throughout the UK from early March. The company has invested £3m in making an Irn-Bru energy drink "with a twist".

The group has battled rising raw material costs and a weak soft drinks market in Britain, but trading has remained solid over the past six months, according to an update in January. It seems that steady investment in its brands, which include Tizer and Orangina, combined with a tight lid on costs, are paying off. AG Barr has widened its geographic reach with new distribution agreements signed in Poland and Australia last year. It also clinched a five-year franchise agreement with Cadbury Schweppes for Orangina, a distribution deal for Snapple and has a similar arrangement with Unilever for Lipton Iced Tea. This strategy should underpin long-term growth and makes the shares a buy, at 958.5p.

No need to cash in yet on WH Ireland

The stock market is booming, so it is no surprise that the stock broker WH Ireland is doing rather well. Yesterday, the group unveiled a 22 per cent rise in annual profits to £3.2m along with a 67 per cent jump in its dividend to 3.75p a share.

WH Ireland generates the majority of its revenues from what it calls -traditional stock broking" - that is, buying and selling shares on behalf of clients in return for a commission and sometimes managing their money on discretionary basis. In fact, it now manages nearly £400m, a rise of 34 per cent on the year.

Also, over the past few years the group has made quite a name for itself as a corporate financier. Last year saw WH Ireland execute 25 initial public offerings, 13 secondary market equity issues, raising a total of £80m for various companies. Pretty much all these transactions were on the Alternative Investment Market, London's junior stock exchange, which is booming in terms of new issues. Laurie Beevers, WH Ireland's chief executive, views AIM as the number one market in the world for growth companies looking for equity funding and he sees no reason why this will change any time soon.

WH Ireland itself listed in 2000 (although it has been in the stock broking business for more than 150 years) and has steadily expanded its private client operations throughout the UK since then. It now boasts 18 offices nation-wide. This column tipped the shares as a buy back in July 2004 and since then they have soared by 125 per cent. Nevertheless, the stock remains one of the cheapest in the sector. Investors should hold on for further gains.

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