Heroes of the big screen

SMALLER COMPANIES

Television stocks frequently attract glamorous ratings, but that's hardly surprising given that they were famously described as a licence to print money, writes Richard Phillips.

In many instances, that observation has proved to be true, in spades. Avesco offers an interesting way into the sector, which may be just as lucrative as investing in a regional broadcaster. Its main business comes from hiring out giant video screens, and it has the largest fleet in the world. Such screens are now compulsory at rock festivals and major sporting events. But it now also owns the largest independent television studios in the country. Demand for its core screen-hire business is expected to grow at 25 to 30 per cent a year.

For its full-year results, sales were up 20 per cent, to pounds 20.8m, with profits ahead 76 per cent at pounds 3.15m. Earnings per share of 29.5p, leave the shares, at 339.5p, trading on a historic PE of 11.5.

Net debt is low, at 12 per cent, in part following a placing and open offer at the last interim figures in November which pulled in pounds 7.1m.

Chairman, Richard Murray, has said the company wants to make at least two acquisitions this year, in North America and in Continental Europe, to grow the company by 50 per cent. He also announced that he had stepped down as chief executive, to be replaced by the group's current managing director, David Nicholson.

The company's last major deal was the purchase last year of a 25 per cent stake for $1.3m in its US rival BCC, to give it control of 40 per cent of the world market in giant video screens.

Given the capital investment required to run the business, Avesco faces the double-edged sword of high, fixed costs. Double-edged because, while it is difficult to cut costs in the bad times, when the good times roll, profits do too.

This is what happened at the last results. With sales picking up a treat, much of the benefit was felt immediately on the bottom line. Looking back, however, the company's track record is uninspiring - a thumping loss of pounds 9.08m in 1995, followed by a pounds 7.2m loss in 1994, and a pounds 1.35m loss in 1993.

While the screen business should continue to perform well, there is also potential in the television studios. Operating at a mere 37 per cent of capacity, the potential from burgeoning growth in both terrestrial programming, in the form of Channel 5, and in digital, should only boost sales.

While the shares have performed exceptionally well since 1995 - up from 100p - the outlook seems set for a more stable, and profitable future. Profits this year were affected by an pounds 800,000 exceptional gain, following the sale of a business, which won't be repeated again. The dividend was increased to 5p (4p), to yield 1.9 per cent gross. That may not be much, but the shares offer reasonable value in the long term.