Avesco Group – Positive Second Quarter & Interim Results ‘Buy’ at 149p, Target Price 260p

14th June 2012 Analyst: Steven Moore Email: steven.moore@gecr.co.uk Tel: 0207 562 3370 Avesco Group – Positive Second Quarter & Interim Results ‘Buy’ at 149p, Target Price 260p

Key Data EPIC AVS Share Price 149p Spread 147p - 151p Total no of Shares 25,371,550 Market Cap £37.8 million 12 Month Range 108p - 169.5p Market AIM Website www.avesco.com Sector Media Contact John Christmas (Finance Director) (01293) 583400 Avesco Group, the provider of services to the international corporate presentation, entertainment and broadcast markets, has announced second quarter and half year results which bear out the optimism expressed at the end of the company’s first quarter. With growing revenue and margins resulting in a substantial upswing in profitability and the outlook remaining highly positive, the stock market rating of the company continues to look materially too low. For its half year to 31st March 2012, Avesco has reported an underlying pre-tax profit of £1.39 million, up from a £0.337 million loss in the corresponding prior year period, on revenue 8.7% higher at £67.46 million. The second quarter saw the company deliver a pre-tax profit of £1.65 million (compared to a loss of £0.14 million in the corresponding prior year quarter) on revenue 7.7% higher at £33.91 million. As these numbers suggest, Avesco generated increased net cash from its operating activities in its most recent six month period (£6.0 million v. £4.37 million), though increased net investment spending saw net debt rise to £24.28 million as at the period end. However, the working capital position was actually improved and the level of gearing continues to look comfortable. Indeed, the company has demonstrated its confidence by introducing an interim dividend of 1p per share - this to be paid on 1st October to shareholders on the register on 14th September. The results reflect the substantial investment the group has made in equipment, people and international infrastructure beginning to flow through and it emphasises that “with the underlying growth in the business continuing and with the additional demand arising from the staging this summer of a number of major events including the London 2012 Olympics, the board remains confident regarding the outlook for the remainder of the financial year”. After ten years at Avesco and with the Olympics a key landmark for the company, the results statement also reveals that Chief Executive, Ian Martin, is to depart, with Chairman, Richard Murray, to dedicate more time to the business pending a decision regarding a replacement. Additionally, David Crump (who has been with Avesco for over 25 years and is CEO of one of the group’s largest operating divisions) and Carmit Hoomash (who has more than 20 years experience in the marketing services industry, within companies such as McCann Erickson Group) are to join the board in executive and non-executive roles respectively. The boardroom changes also reflect that the international platform the company has been driving to build is now significantly developed. After the current major capital expenditure programme, the company is to target developing its business with a reduced level of investment – generating surplus cash “which should enable funds to be used for debt reduction or to be returned to shareholders”. With Avesco confident both for the short- and long-term, we retain our current forecasts and expect further progress thereafter (forecasts for next year will be introduced when the company announces its third quarter results). The shares have been impacted by the stock market turmoil of recent months – falling from a March high of 169.5p. However, the results suggest our core valuation of 3x Enterprise Value/EBITDA - 225p per share - remains more than sufficiently conservative, with this before taking any account of Avesco’s interest in an on-going US litigation case in which a unanimous verdict in July 2010 put the company in line for a net approximate $60 million (c. £38.5 million) payout. Although this has been appealed, Avesco has emphasised it is "comfortable that the legal argument on which this case will be determined remains favourable" to it and even discounting the potential payout for 2 years and using what seems a highly conservative 30% probability of success suggests another 35p per share. Additionally supported by almost 150p per share (£37.91 million) of net tangible assets and a likely 4p per share total dividend for this year (currently equating to a 2.8% yield), with a maintained target price of 260p, our stance remains buy. Forecast Table Year to 30th September Revenues (£ million) Adjusted Pre-tax Profit (£ million) Earnings Per Share (p) Adjusted EBITDA (£ million) EV/EBITDA (x) Net Debt (£ million) 2010A 117.24 (0.083) (1.2) 19.65 2.5 13.73 2011A 125.53 0.911 2.6 20.26 2.4 12.14 2012E 143.0 5.0 14.0 27.0 2.2 24.0

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