Vitec (VTC)

 FTSE SmallCap

substantive堅固的 business,
MARKET CAP at about £175 million
annual revenue of about £300 million.

 leading provider of equipment for the global broadcast and photography markets,
the group made over £25 million pre-tax profit in both 2007 and 2008, with eps about 50p,

broker forecasts anticipate EPS of about 36p this year and 42p in 2011. S

shares' modest price-earnings multiple of about 11 times falling below 10, if projections are valid.
Prospective dividend yield of 4.5%

The last trading update on 17 May provided, likely 2010 profit "at the top end of the range of market exp".
Key factors cited are an improving photographic攝影用 market, "many new products were launched and well received".
The services side, if only 8% revenues in 2009 and loss-making, has had a stronger-than-expected start to the year.
Note that broadcast markets are affected by corporate advertising budgets, hence the slump in 2009 after consumers reacted to the 2008 credit crunch and advertising was slashed, which hit high-profile media especially.

Over half of Vitec's 2009 revenues were US-derived, the UK representing only 7%, so the group is not set to be hurt by the coalition government's imminent tax rises on consumers.
40% of the market for photographic tripods三腳架 and auto prompters提白,
up to 80% in broadcast camera pedestals基座.

These are strong positions with a high degree of customer loyalty in commercial use where reliability is paramount; although some consumer items could be vulnerable to low-cost rivals in a recession.

The two main divisions - similar revenues:

Videocom providing 'around the camera' peripherals 周圍的 such as pedestals, batteries and auto-cues, Imaging sells mainly tripods三腳架 and related accessories for digital cameras.
Vitec is much bigger than its rivals it can invest more to maintain its position which has led to considerable brand loyalty - also strong means of distribution to launch new products via (for example) the acquired LitePanels business, an industry-leading LED lighting solutions provider which grew sales by 20% last year despite a 30% fall in broadcast markets. You can learn more by visiting vitecgroup.com.
Despite these strengths, the group's history has involved some less-than-brilliant acquisitions and an attempted diversification into air traffic control,

 the appointment of a new chief executive in early 2009 - after a new finance director in late 2008. Swift action to restructure the business hit the 2009 accounts by £10.9 million, and including write-downs virtually all the £22.7 million headline pre-tax profit was wiped out.

More positively for future earnings it has resulted in annualised cost savings of £22 million and refocused R&D onto new opportunities in core markets.
Vitec has entered military and government markets by adapting existing products for wireless surveillance - for example in military vehicles and law enforcement such as crowd control, to help police authorities. With 'best in class' technology, driven by the need for total reliability in broadcast markets, and a recent major contract win from a US federal agency, it is worth watching for further progress in this division.
Strong cash generation of £22.7 million during 2009, despite the year's challenges, helped Vitec reduce net debt from £530 million at end-2008 to £29.6 million by end-April 2010, helped lately by £80 million initial proceeds from a disposal. The remaining debt is long-term, based on a £125 million facility to August 2013. A £1.8 million net interest charge in 2009 was minor anyway relative to £24.5 million operating profit and (showing the recovery potential) Vitec achieved £38.4 million operating profit in 2008.
Of £111.2 million net assets (261p a share) at end-2009, £58.2 million were intangibles. With current assets more than twice current liabilities at the year-end, and including £12.1 million cash - implicitly about £20 million now - Vitec has a sound balance sheet.
So although the shares have risen from a bear market trough, to their level in late summer 2008, on fundamentals the risk/reward profile here is looking attractive. On a two-year view I would target benchmark earnings of about 40p a share and a P/E multiple in the mid-teens, implying a share price target of about 600p - i.e. 50% upside on capital value alone before dividends. Vitec traded up to 676p in 2007, benefiting then from media prosperity and a generous P/E near 20 times.
Management is showing it has got its act together, the main risk is a double-dip recession, but Vitec has restructured itself with a lower cost base to cope. If trading was to continue to beat expectations then my target could end up looking conservative for this leaner, fitter company.