First Artist- FAN-tastic opportunity

Investors Chronicle 22 December 2006 - BUY!

FIRST ARTIST (FAN)

First Artist has not had an easy time since it floated on the Alternative Investment Market (Aim) five years ago. Via an acquisition, it became the largest football agent in Europe. But it then got hit hard by the failure of ITV Digital and Bertlesmann in Europe, which cut clubs' media income, and by Fifa's decision to restrict transfers to two short time periods. The upshot was a big write-off of goodwill in 2002-03 and an urgent need to diversify.

And diversify is what First Artist has done. The latest deal is the recent reverse takeover of Dewynters for up to £15.5m, including £9m cash. Dewynters is the UK's dominant UK entertainment and theatre marketing services agency, with subsidiary operations in the US. This is one of a number of acquisitions that has transformed the company. On the basis of 10-month figures for the pre-acquisition group and 12-month figures from Dewynters to end-March 2006, the new group would have reported turnover of £43m and pre-tax profits of £2.8m.

At an operating level, the media services division dominates, with profits of £2.35m on pro-forma sales of £33.6m, followed by the football-management arm, which contributes a profit of £1.09m on income of £4.16m. The financial advice business, which advises football stars, other celebrities and high net-worth clients earned profits of £801,000 on turnover of £1.87m in the 10 months. Finally, there are smaller contributions from an events company, which puts on 400 events a year, plus an entertainment representation agency, which finds work for celebrity clients. First Artist is also confident that its strong cash flow can finance earn-out payments and reduce debt.

Ord price: 7.25p Market value: £8.17m
Touch: 7-7.5p 12-month High: 10.38p Low: 5.5p
Dividend yield: nil PE ratio: 9
Net asset value: 12p§ Net debt: 57%§
§Based on pro-forma accounts

Year to Turnover Pre-tax Earnings Dividend
31 Oct (£m) profit (£000) per share (p) per share (p)

2005 5.86 809 0.89 nil
31 August 31 August
2006* 9.51 1267 0.83 nil
% change** % change** +88 +12 -

Last IC view: Buy, 7.13p, 5 May 2006
*10-month period
**Annualised

First Artist has been rejuvenated and the latest deal makes a lot of sense. Speculative buy.