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colaiscute

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Giving DVDs and CDs a whirl.

 

A year ago, Shares identified Magna Pacific as a hot prospect because its leverage to the rapidly expanding DVD industry was expected to fuel strong growth. After generating net profit after tax and revenue growth of 147% and 81% respectively, in FY03, it is little wonder that Magna's share price boomed in the past 12 months. Forecasts indicate another excellent year for MPH and, based on the company's current share price, it still looks good value, given its PE ratio of about 10 based on management's FY04 guidance.

A new player in the sector has arrived via a merger with the troubled Isis Communications. AAV Australia merged with Isis only in 2002, but the company has a long-established history in the industry, having launched the first fully integrated DVD production, manufacturing and distribution operation in Australasia.

Considering the merged entity's growth profile, its share price seems unusually cheap. Perhaps the Isis connection may be a concern for investors, so it is important to understand Isis's history before delving any further.

Isis Communications stormed into the new millennium, its share price bolting from 50c at the start of 2000 to $2.65 in March. But by the end of the year Isis, along with many peers, had become another casualty of the tech wreck with its shares at less than 20c. The reason to reconsider Isis isn't based on the market's rekindled appetite for risk, although that could be a factor that serves to sustain the company's recent share price momentum. It is AAV Australia's business that makes Isis, now called AAV Limited (AVV), look appealing. While its share price has more than doubled in the past six months, AAV still appears cheaply priced. Forecasts provided by Commsec indicate earnings per share of 13c for this year ending December 30, 2003. However, based on AAV's first half performance, the forecast seems creditable and well within its reach. AAV generated an after tax net profit of $4.7 million for the six months to June 30, 2003, representing earnings of 7.5c per share. In the past, AAV's DVD and VHS manufacturing business and its associated outside broadcasting operations have performed more strongly in the second half of the year, which suggests that the Commsec data reflecting a p/e ratio of 11 based on a share price of $1.43 is conservative.

However, it is AAV's leverage to growth industry and the divestment of Isis's loss-making business that make the new look company an attractive investment proposition.

Since the merger, the group has sold its education businesses, Planet Learning and XSIQ, for $2.1 million. Apart from clearing the decks, management strove to increase AAV's business by expanding its operations to incorporate the manufacturing, packaging, design and distribution of compact discs and audio-cassettes. A joint venture with Regency Recordings facilitated this progression, with AAV Regency as the vehicle that will drive substantial growth in revenue and earnings.

AAV will have a 51% interest in the entity, which is expected to generate annual revenue of $70 million. To put this into perspective, revenue for the merged group for the half-year ended June 30, 2003, was $48.3 million, suggesting that the AAV Regency venture should show an increase of about 30%.

In terms of medium-term revenue growth, the AAV Regency venture could have a much more substantial impact. AAV can now offer clients such as Columbia TriStar and Twenty Century Fox end-to-end solutions across the full spectrum of sound and visual production, manufacturing and distribution. This should serve to expand its client base and assist in retaining existing customers.

Although AAV does not participate in the actual movie-making process, it collaborates with producers in the creation and enhancement of movie productions and commercials.

The company asked us not to reveal clients, but it services many of Australia's blue-chip companies and major film studios in the United States. AAV also has a significant presence in New Zealand and performs contract work in Asia. Its Broadcast Rentals division has been involved in such high-profile international projects as the Olympic Games (coverage at eight venues for NBC America), Wimbledon, the Australian Open and the Australian Formula One Grand Prix.

With a market cap of $85 million, AAV is larger than Magna Pacific, is more diversified and has a growth profile that ranks favorably against Magna's.

 

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Long-term, which is better? AAV or MPH?

 

MPH is perhaps better over the medium-term, because it is more leveraged to the DVD market, but little diversification. I hold MPH and am very happy with it's performance ... got a nice fat dividend cheque yesterday, which doubled from last year, and was also ff. http://www.asxboard.com/html/emoticons/biggrin.gif

 

For such a small media company, they have the rights to some outstanding titles in the Aust and NZ market, especially in history and documentaries (a niche which they basically control, as competor's titles pale in comparison to MPH's history/documentary library IMHO)

 

Does anyone know who manufactures MPH's DVD's?

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  • 1 month later...

IN REPLY TO A POST BY colaiscute, Wed 07/01/04 07:48pm   [READ POST]

If you ask me... things arent looking too good. The next days will be extremely important. Will SP break the support? Your guess is as good as mine.

I'd agree with you, but I have seen AvV look like this before and the big guys seem to come in and save the day at the last minute.

From a trading point of view, very boring at the moment.

 

We may see some action closer to earnings (fingers crossed).

AvV should be posting some big revenue numbers, and it's only trading 12c above ABN's old rating of $1.50 and 53c below ABN's new rating of $2.15.

 

More upside for the patient IMHO.

 

Cheers Tex.

 

 

 

 

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IN REPLY TO A POST BY rotuma, Wed 19/11/03 07:42pm   [READ POST]

Long-term, which is better? AAV or MPH?

MPH is perhaps better over the medium-term, because it is more leveraged to the DVD market, but little diversification. I hold MPH and am very happy with it's performance ... got a nice fat dividend cheque yesterday, which doubled from last year, and was also ff. :D

For such a small media company, they have the rights to some outstanding titles in the Aust and NZ market, especially in history and documentaries (a niche which they basically control, as competor's titles pale in comparison to MPH's history/documentary library IMHO)

Does anyone know who manufactures MPH's DVD's?

 

 

#Long-term, which is better? AAV or MPH? #

 

I'd like to see both half yearlys first before taking a stab at that question.

AvV's merge with staging connections is going to make a major difference to the revenue stream.....but we still need to see forward profit forecasts before they can be compared.

 

Tex.

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