Soaring energy prices over the past three years have resulted in a bonanza for gas- and oil-rich countries. Vast quantities of petrodollars have been created and recycled back into local economies. I have therefore for some time been actively scouring the larger energy-producing nations for attractive investments that can benefit from the influx of these petrodollars. Until recently, most opportunities have proved too pricey, but following the falls in global stockmarkets, I’ve found this tip:
Gamble of the week:International Marketing & Sales Group (IMSG: Aim, 160p)
IMSG offers a range of sales and marketing services in Russia, the Commonwealth of Independent States, Turkey, Hungary and India.The firm was founded in 1996 by its chairman and chief executive, Gregory Thain, and listed on Aim in December 2005 at 190p, raising £6.8m. In April 2006, it raised a further £8.6m at 215p in order to fund strong organic growth and acquisitions in India and Hungary.
Russia is IMSG’s biggest market, accounting for more than 90% of the group’s $44.2m sales in 2005. But the firm’s strategy is to develop similar sized businesses within all of the BRIC (Brazil, Russia, India and China) economies.
IMSG’s activities are outsourced sales ($22.0m), consumer marketing ($14.1m), communications ($5.7m) and research ($2.4m). Customers include multinationals such as Mars, Gillette, Wrigley, PepsiCo, and Metro, who wish to penetrate the local market; and domestic firms, such as Beeline, that have global ambitions.
Sales and marketing services in Russia are growing by 25% to 30% a year, and I suspect organically IMSG is expanding faster than this, since its turnover in Russia increased 93% last year.
Canaccord is forecasting earnings per share of 12.0p and 19.5p for 2006 and 2007, thus putting the shares on corresponding p/e multiples of only 13.5 and 8.3 for such a rapidly expanding business. Additionally, the balance sheet is strong, with approximately $7m of net cash.
Of course, investing in emerging markets is not without risk – especially in light of geopolitical uncertainty and currency volatility. However, economically, Russia is powering ahead with real GDP growth of 6% a year, and substantial foreign currency reserves (estimated at $200bn) piling up due to the strong energy exports. This has helped the rouble to appreciate by 15% against the greenback since January 2003. Another area to watch is rising salaries, especially in Moscow, due to tighter labour markets.
IMSG looks to be a well-run business operating in high-growth markets with shares that are attractively priced.
Recommendation: BUY at 160p (market cap £58m)
Paul Hill’s personal portfolio has gone up by 483% over the last five years. to find out more about his specialist share-tipping service, ‘Precision Guided Investments’, click on the link below: