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Avesco Group – share tip of the year update

By Steve Moore | Friday 5 February 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Having earlier updated on my first of two tips for 2016 HERE, I now update on the second – this being international media services group Avesco (AVS) at a 227p offer price.

That initial piece noted that this was a bit of a leap of faith as there had been no announcements from the company since June, though interim results then had noted that “as a result of the improved outlook and trading, the full year results are again likely to exceed the board's prior expectations” and that “as a sign of the board's confidence in the outcome for the current year, we are again increasing the interim dividend, this time to 2.0p per share (2014: 1.5p per share)”. This provided the confidence for me to suggest that earnings per share forecasts of around 17p for the company’s now current year could prove highly conservative.

Last month saw the company announce that it “has exchanged contracts for the sale of the freehold land and buildings at its television studios in Wembley… for a consideration of £16 million” as well results for its year ended 30th September 2015. These showed a record breaking year, with operating profit even higher than in 2012 when the group had the benefit of a home Olympics, a 5p dividend per share proposed to be paid on 6th April to shareholders on the register at the close of 11th March and included that “we expect to be able to continue our drive to increase profitability, to generate cash and to grow dividends”.

Following this, my earlier suggestion that earnings per share forecasts of around 17p for the company’s now current year could prove highly conservative compare to there being a forecast now for earnings per share approaching 21p (as well as a dividend per share of 8p). The shares initially sparked higher to reach 250p on the back of the announcements from the company, but have now fallen back towards 210p.

Considering the recent positivity from the company, the valuation here now looks particularly harsh. The 5p per share dividend set to be paid in April currently represents a more than 2.3% yield alone and I continue to consider there attractive re-rating potential for this pick for 2016.

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