Paul Hill's tip of the week: a bargain in the media sector

Paul Hill, one of Britain's most successful private investors, picks the best share tips from the press and brokers' reports.

The £12bn UK advertising industry is undergoing dramatic change. The importance of traditional radio, press and TV media is diminishing as consumers continue to spend more time and money on the internet. The £1.6bn UK online sector is now the third-largest advertising medium and is expected to grow by 39% this year. This has hit many industry heavyweights, such as ITV, Johnson Press and GCap, who are suffering declines in like-for-like revenues. The winners have not only been Google and Yahoo, but also firms providing one-stop-shop marketing services that help advertisers maximise opportunities from these online formats. This week's top tip belongs to the latter category.

Best Tip of the Week: Creston (CRE: 160p), tipped as a BUY by Panmure Gordon

Creston provides market research, advertising, public relations, communications and strong internet/digital media expertise. It has many leading blue-chip customers, such as AA, Opel, Blockbuster, Kraft, Unilever, British Airways, Dixons and Orange.

Creston was set up in January 2001 to acquire and build from scratch an international marketing group. Over this period, it's bought nine complementary businesses, including splashing out £75.5m on two chunky acquisitions in May 2006. These two transactions were part funded by a £14.1m placing of new shares at 165p.

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This increased scale has created a focused group with critical mass in the UK, where 80% of turnover is generated. The management's track record is impressive. For instance, both revenues (£43.5m) and diluted earnings per share (EPS 12.6p, under IFRS) have risen consistently every year since incorporation. In 2005 like-for-like sales grew by 14%, while underlying EPS jumped 34% and a 2.4p dividend was paid. So far, so good.

Panmure forecasts fully diluted EPS of 14.1p and 16.2p for this year and next, representing an average growth rate of 13%. This seems conservative, especially in light of the impressive historical performance. Net debt is expected to be £4m as at March 2007.

Creston's objective over the next 12 months is to integrate these recent acquisitions while continuing to build its strong online presence and hunt out new acquisitions, particularly abroad.

On a current year p/e of only 11.4, this compares very favourably with the sector average of 15-20 times for larger competitors, such as WPP and Aegis. With consolidation rife in this sector, I wouldn't be at all surprised if Creston was taken over some time within the next two years by an overseas player wishing to bulk up in the UK. Finally, in relation to its prospects, its board said last week that they expect to have "another excellent year in 2007".

Recommendation: BUY at 160p

Paul Hill's personal portfolio has gone up by 483% over the last five years. To find out mroe about his own specialist share-tipping service, 'Half Price Shares', click on the link below:

Paul gained a degree in electrical engineering and went on to qualify as a chartered management accountant. He has extensive corporate finance and investment experience and is a member of the Securities Institute.

Over the past 16 years Paul has held top-level financial management and M&A roles for blue-chip companies such as O2, GKN and Unilever. He is now director of his own capital investment and consultancy firm, PMH Capital Limited.

Paul is an expert at analysing companies in new, fast-growing markets, and is an extremely shrewd stock-picker.