Cheaply priced for growth prospects AAV was established in 1974...

Cheaply priced for growth prospects

AAV was established in 1974 as an electronic media services company and now has market leading positions in Post Production, DVD manufacturing and corporate event management.

The earnings outlook for the next few years looks promising with the bulk of the growth to come from the recently acquired Staging Connections event management business and the DVD manufacturing operations.

The key reasons we like the stock are:
1: Valuation is attractive: 2004 PE ratio of 11.4x, falling to 10.1x in 2005, and a DCF-based price target of $2.90
2: Recently acquired Staging Connections is a high quality business with strong revenue growth expected from 2004 out to 2006
3: After 2004, which has abnormally high capex of $20m, we forecast AAV to generate substantial free cash flow from 2005 onwards
We initiate coverage with an Outperform recommendation for AAV and a $2.90 price target.

We believe the key deliverables in the next six months for AAV are to bed down the Staging Connections acquisition and to maintain the strong revenue growth in DVD manufacturing

We view the appointment of Staging Connections founder Gary Hackett as the next MD of AAV positively and believe it will ensure a smooth transition following current MD Ted Gregory’s retirement in January 2005.