Investment Column: Strong advertising revenues boost Aegis

Savills; TT Electronics
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The Independent Online

Our view: Buy

Share price: 138.6p (+8.2)

Aegis, the UK-based marketing group, put out a strong set of numbers yesterday, beating analyst hopes and offering nervous investors optimism for the remainder of this year.

The return of advertising revenues in the US and Asia-Pacific, and in market research, helped lift the group's overall sales by 5.4 per cent to £1.4bn in 2010 over the previous year. The promising results drew a positive response from the market, and the Aegis share price booked steady gains throughout the session. Encouragingly, the company believes its revenues will hit a similar level this year.

That said, the group did have some bad news, revealing that it had to make a provision against bad debts of £25.9m after Spanish client Nueva Rumasa went into pre-insolvency protection. The disaster in Japan struck after the results were filed and will have some impact on Aegis, which is trying to set up offices in Osaka. The company also added that although the world economy had improved there were still regional difficulties.

However, Jerry Buhlmann, the chief executive said yesterday that the company's two divisions had outperformed their markets, adding it had started 2011 "with increased confidence" despite limited medium-term visibility. It has made acquisitions across Russia, Australia and China in an effort to support its strategy for sustainable growth, with China seen as the fastest-growing media market.

In light of all this, Altium Securities upgraded its profit forecasts for the current year by 5 per cent to £196m in the wake of the results, reflecting increased confidence in the market, higher advertising spending and a structural shift towards high-value areas in the marketing sector.

In terms of valuation, Aegis is on a price of 12.3 times forward earnings, according to KBC Peel Hunt. The shares more than doubled from their nadir in the fourth quarter of 2008 to February, but have dropped by around a tenth since then. This drop and yesterday's results lead us to believe that Aegis presents buying opportunity in the short term, and may well provide value further out.


Our view: Buy

Share price: 367.9p (-6.1p)

Cocking a snook at all the doom and gloom from the domestic property market in recent weeks, the international real estate group Savills bumped up its dividend by 44 per cent at the same time that it published its full-year results yesterday.

Pre-tax profits shot up by 173 per cent to £36.8m over the year to the end of December, the company said, on revenues that were up by 21 per cent to £677m. Perhaps unsurprisingly, the Asia-Pacific property market is singled out for special mention, with record performance in the division pushing it to account for more than 41 per cent of group revenues and leaving the UK with less than 50 per cent of turnover for the first time.

But London still performed strongly enough for a name-check from Savills' chief executive, Jeremy Helsby. Continental Europe also saw improvements, led by the key French and German markets. Meanwhile, although the catastrophic earthquake and tsunami in Japan are likely to pull down Asian growth this year, any slowdown is expected to be offset by growth elsewhere, Mr Helsby said.

"Our confidence in the longer-term potential of our business is reflected in the substantial increase in [the] annual dividend and our new dividend policy announced today," Mr Helsby said.

Savills is a tightly run company with a falling price-to-earnings ratio and rising yields and is well positioned to benefit from the strengthening global economic recovery.

TT Electronics

Our view: Buy

Share price: 161p (+2p)

The electronic components supplier TT Electronics certainty pleased the City with its full-year figures.

Revenues rose by more than 20 per cent to £571.3m while TT moved to a pre-tax profit of £25.2m for 2010, against a loss of £16.6m in 2009. Alongside this stellar performance, TT also managed to reduce net debt by £47m thanks to strong cash generation and returns from disposals.

Analysts value the shares on around 14 times forward earnings. That falls to around 10 times on the estimates for next year, leaving TT at a 25 per cent discount to the wider sector, according to Numis. Such numbers alone would demand a positive stance. The results only cement the case.