Companies: AMU    RWS    VIS   

Mark Frey describes his company, budget music CD and DVD specialist Air Music & Media, as a ‘neat and simple’ business with a ‘good record of growth’ and a ‘decent’ position in its market. He talks quietly of the progress he expects to make this year and just as quietly about the growth he expects in his niche market.

His reluctance to engage in bold and bullish claims about what Air Music might achieve is remarkable when set against the explosive expansion of his firm.

Strong growth

In 2002 Air Music posted sales of £4.37 million and secured profits of £800,000. This year to March, it is expecting sales in the region of £45 million and operating profits (pre-goodwill) of almost £4.5 million.

Almost all of this growth has come from acquisitions – indeed a new business has been added to the Air Music empire every year since 2001. The last, and most important, was that of Redworth, which cost £27 million (it was classed as a reverse takeover under AIM rules).

Says Frey: ‘Until Redworth, our business was focused on selling budget, easy-listening music compilations and DVDs to wholesale distributors. But now we have a direct route to market – and a great opportunity to enhance our margins.’

In all, Air Music has developed and acquired more than 100,000 tracks of music and 1,000 films. This is a substantial asset at a time when its retail clients are making real inroads into the easy-listening market (recent research has shown the major multiples now hold 23 per cent of the budget compilation music market). It also has the games industry to gun for and opportunities overseas.

With all the ducks lined up, house broker Seymour Pierce is expecting sales to hit nearly £80 million in the year to March 2006 and operating profits of £7.6 million. This would suggest the stock market value of £28 million does not reflect the true worth of the business. On this point Frey says, ‘I can’t control the share price, only the business. And we’re doing fine.’

RWS – profits and pay-outs

Another successful executive who eschews the media spotlight is Andrew Brode, of RWS (and also non-executive director of Vitesse Media). RWS, an international patent translation, intellectual property and information search specialist, slipped onto AIM in November 2003 by reversing into failed shell Health Media.

While many new AIM companies enjoy higher profiles than RWS, few companies that have floated in the last 18 months are as profitable, as cash generative or as uniquely placed in their markets.

At the start of this year Brode, who describes himself as ‘conservative and cautious’, delivered record-breaking results for the year to September, which showed sales of £31.1 million, profits of £6 million (before exceptionals) and a cash pile grown to no less than £10.7 million.

And already this year RWS has snapped up a £2.25 million acquisition that ‘will be immediately earnings enhancing’, and issued a trading statement saying ‘revenues and profit before tax are ahead of expectations’.

But apart from the required Stock Exchange announcements, there has been no accompanying media charm offensive. Says Brode: ‘Why should there be? The facts speak for themselves. We generate good cash, our shares have an attractive yield, we are growing and we have resources for acquisitions.’

‘I own 48 per cent of this business and tell the RWS story exactly as it is. The CEOs who shout loudest often own very little shares but have loads of options to look after. That’s not my game.’

If his approach appeals to you, so should this year’s forecasts. Pre-tax profits are likely to be in the region of £6.8 million on sales of £35.4 million with the cash pile expected to grow to £12 million. The £67.5 million market capitalisation does not do this company justice.