Avesco: Running A Tight Ship In FY13

Avesco (AVS.L) finally looks set to receive its US$60m (£40m) payout from the Disney/Celador case within the next few months – earlier than we expected – and has reiterated that it intends to distribute the ‘majority’ of the net proceeds to shareholders. Meanwhile, the small Q1 loss announced last week was slightly better than our estimate and our full-year numbers are unchanged. With potentially 150p of the share price accounted for by the Disney proceeds, the P/E for the rest of the business is only 5.0 times (averaging FY13 and FY14 earnings) and the NAV of 149p per share is backed by high-quality rental assets.

Worth the wait
After a lengthy appeal process Disney has failed to overturn a US jury’s 2010 award of US$320m (£210m) to Celador and the judgement is finally collectible. Avesco announced on 8 March that it expects to collect its US$60m (£40m) share in a few months’ time. The ‘majority’ of the net monies (after costs and taxes) are expected to be distributed to shareholders. Avesco has not yet announced the likely structure of any distribution, but we would imagine it could include both dividend and capital options.

Running a tight ship in FY13
The timing of major events and exhibitions means that Avesco usually experiences stronger trading in ‘even’ years than in ‘odd’ ones, and has some lumpiness in quarterly results. In Q113 this was exacerbated by post-Olympics indigestion in the UK and fiscal cliff worries in the US, but the trading loss was modest at £135,000 (Q1 FY12: profit of £66,000). Q2 trading has shown “encouraging signs” and with China on track to turn in a full year profit (versus a loss of over £1m in FY12) we are leaving our estimates unchanged. There was a capex bulge for the Olympics in FY12 (to £30m) and with such a well-invested rental base we expect a sharp fall (to £16m) in FY13. On this basis we expect net debt to decline to £23m by September.

Valuation: Once payout is known, back to business
Within the next few months investors should know the size, structure and timing of the distribution to shareholders, at which point attention will refocus on the core business. Post the recent investment the rental base is in very good shape, albeit facing tough trading in some markets. We consider it appropriate to average earnings over odd and even years; allocating a potential 150p to Avesco’s Disney windfall puts the rest of the business on a modest FY13/14 P/E of 5.0x and an EV/EBITDA of 2.9x.

To Read the Entire Report Please Click on the pdf File Below.