City wary of booming Avesco
Article Date: Dec 15 2000Television services provider Avesco, part owner of the producer of 'Who Wants To Be A Millionaire?' has chalked up an 86 per cent first half pre-tax profits gain to £5.7 million, but the City is unimpressed. Helena Keers reports.
Group turnover increased by 20 per cent to £33.6 million (£27.9 million) in the six months to September. But institutions remain unhappy about Avesco's continued reliance on profits from its 49 per cent owned subsidiary Complete Communications - which produces the hugely successful 'Who Wants To Be A Millionaire?'.
Complete's contribution to operating profit increased by no less than 792 per cent to £2.7 million in the period. Matthew Horseman of house broker Investec Hendersen Crosthwaite predicts Complete will generate £7 million of profits for Avesco, against £5 million from the company's core divisions.
David Nicholson, Avesco's chief executive believes 'Who Wants To Be A Millionaire?' 'has a 20 year life as it will always be on air somewhere in the world'.
It has been broadcast under licence in 35 countries and is an 'effective advertisement for the show's merchandise' - a branded board game, which is licensed to 17 countries, a computer game, which was launched in September and a pub quiz game. Discussions are also at an early stage on internet, wireless and digital interactive TV opportunities.
But the stock market has questioned the longevity of the programme and Avesco's control as the minority shareholder in Complete. As a result, shares in fully-listed Avesco have plummeted from the summer high of 1287.5p, after Disney and the Financial Times reported 'Who Wants To Be A Millionaire?' had slumped in ratings, to 730p today.
Yet the original investment of a mere £713,000 in 'Who Wants To Be A Millionaire?' has clearly been returned many times over. In the UK, cash from the show funded the January launch of the new 'one-stop shop' subsidiary called MCI, which provides a whole package of videoing, broadcasting and staging. Also tests have been funded in the US market.
Avesco's other three core divisions - corporate presentation, giant screens, broadcasting - have all proved profitable. Nicholson likes 'to spread risk over many markets and many currencies' and therefore believes in diversification of product and market.
The giant screen subsidiary has hit hard times with the weakness of the euro for example but Avesco is looking into rolling it out in Japan and is testing the screens in the US. Black & White Television Mobile's business and assets were also acquired in the period to provide broadcasting synergies.
Avesco has a strong balance sheet with interest cover, excluding goodwill at 13.0 times (8.5). It is also 'prudently' increasing depreciation so its equipment is not over-valued. However, this masks the 20 per cent top line organic growth.
Investec Henderson Crosthwaite predicts profits of £12.3 million for 2001 and an EPS of 54.1p. Despite this the shares are still only 40p above their year's low.
This story is from Growth Company Investor, the independent voice on fast-growing companies. Subscribe today for the latest AIM recommendations.
