Smaller Companies: Not all gloom in advertising sector
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Your support makes all the difference.THE ADVERTISING sector has been out of favour for several years, thanks to a succession of financial problems faced by many of its constituent companies.
They include giants like Saatchi & Saatchi and WPP, the group that owns the blue chip agencies J Walter Thompson and Ogilvy.
While Saatchi has been pulled back from the brink, WPP's future will be decided over the next few days when it seeks approval from shareholders for a dollars 422m ( pounds 221m) refinancing proposal to save it from collapse.
There are many other examples of agencies in trouble. The latest is Aegis Group, whose shares have slumped by 60 per cent in about a month to 43p last Friday.
The sharp fall was triggered by the sudden departure of its controversial founder, Peter Scott, in a boardroom coup supported by Aegis's largest shareholder, Warburg Pincus.
Since then there have been growing worries about prospects and several analysts have sharply downgraded profit forecasts.
At this level Aegis will still be the sector's biggest profits generator, but the shares may stay in the doldrums for some time.
However, the sector offers share bargains in well-run companies for long-term investors. Gold Greenlees Trott, best known for its Red Rock cider campaign, looks good value at 224p.
Three weeks ago GGT reported a 19 per cent drop in taxable profits to pounds 4.1m, though operating profits were down 7.5 per cent and earnings 10 per cent off at 17.3p.
The results masked a strong performance in the US, where trading profits rose by two-thirds to pounds 3.6m thanks to a string of new business wins. In contrast, profits in the UK fell by 40 per cent to pounds 2.8m.
Mike Greenlees, the company's joint chairman, believes the company is benefiting from the fragmentation of advertising from big cities like New York to regional centres such as Atlanta, where GGT has a strong presence.
The trend is partly due to the migration of big blue chip companies to small cities where rents and labour are cheaper and quality of life better.
But the UK remains difficult. As a result the group is keeping a tight control on costs.
The company has an pounds 11m net debt that is not due for repayment for at least another five years. The market is looking for an improvement in pre-tax profits to pounds 5.5m in the year to 30 April 1993, rating the shares at 11 times.
On a maintained dividend of 8.3p, the yield amounts to almost 5 per cent. The shares, which have soared from a 12-month low of 139p, have further to go.
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