BL: Vitec Group Sales Shift Snares Gates Foundation as Shareholder
By Kari Lundgren
May 25 (Bloomberg) -- Bill Gates's $37 billion foundation is buying shares of Vitec Group Plc, the U.K. broadcast-equipment maker helping NBC cover the Beijing Olympics, as the century-old company transforms itself from a tripod vendor to a one-stop shop for TV studios.
Four of Vitec's six biggest shareholders reported buying in February and March filings. The Microsoft Corp. founder and wife Melinda's foundation added 122,200 shares for a 2.1 percent stake, according to a regulatory filing.
The shares, down 18 percent since October, are ``significantly undervalued,'' said David Herro, who manages the $1 billion Oakmark International Small Cap Fund at Harris Associates LP in Chicago.
Nine acquisitions in three years expanded the Kingston upon Thames, England-based company's offerings to include wireless links for covering outdoor events and mini-studios that can be shipped by air. Sales growth may reach 10 percent a year even after a contract with Sprint Nextel Corp., the U.S. mobile-phone company, runs out in 2009, Chief Executive Officer Gareth Rhys Williams said in an interview.
``They have some structural wind at their back,'' said Herro.
Harris is Vitec's biggest investor with a 12.5 percent stake, according to regulatory filings, including the shares it bought on behalf of the Seattle-based Bill & Melinda Gates Foundation. ``As broadcasters switch to high definition, it has meant growth for the ancillary products such as support and lighting,'' Herro said.
Disk Recorders
Vitec trades at 9.8 times estimated 2008 earnings per share, 42 percent cheaper than Ougree, Belgium-based EVS Broadcast Equipment SA, the largest supplier of disk recorders for live broadcasts. Vitec, which closed at 500 pence in London trading May 23, may rise 37 percent to 685 pence, Arbuthnot Securities analyst Michael Blogg estimates.
Seven out of nine analysts in a Bloomberg survey say to buy the shares, one recommends holding and one says to sell.
Vitec's equipment ranges from robotic camera pedestals to wireless teleprompters and lighting. ITN News, a unit of ITV Plc, the U.K.'s largest commercial broadcaster, uses Vitec's robotic broadcast systems in its London studios, as well as the company's batteries to power outdoor broadcasts.
As broadcasters, including CNN and Fox News, switch to high- definition programming, they must upgrade to tripods that reduce vibration because picture quality is more sensitive to movements, Rhys Williams said.
``As folks replace their cameras, they replace all their studio gear, too,'' Rhys Williams, 44, said. ``That wave has quite a few years to go yet.''
Instant Replay
Vitec broadened its range of services with the $38.5 million acquisition of RF Systems in June. The unit's antennas, receivers and converters can transmit footage wirelessly from outdoor events to production centers. Vitec upgraded the National Football League's instant replay systems at 29 U.S. stadiums last year and will provide wireless helicopter links for news crews at the Olympics.
RF is participating in Overland Park, Kansas-based Sprint Nextel's $600 million project to provide antennas that will help move to a frequency spectrum that doesn't interfere with police and fire radio signals. RF's share of the three-year subcontracts may reach 35 percent, according to an estimate by Dresdner Kleinwort analyst Mike Costello.
Vitec's sales will decline 3.7 percent in 2010 as the Sprint deal runs out, analysts surveyed by Bloomberg forecast. Rhys Williams said revenue may actually return to its ``normal rate'' of 10 percent annual growth that year.
Half of Vitec's revenue comes from North America and the dollar's 13 percent fall against the pound since the beginning of 2006 has eroded the value of U.S. sales.
Total revenue may increase 11 percent in 2008, according to the survey, about half of last year's rate.
Dollar `Nightmare'
``The falling dollar is a nightmare,'' said Rhys Williams. ``There will come a time when the dollar starts appreciating again, in which case we will make a phenomenal amount of money.''
To increase sales outside the U.S., Vitec plans to expand the RF unit in Asia, Europe and South America and may buy distribution partners in Mexico, Canada, Korea, Russia and Spain, Rhys Williams said.
Founded in 1910 as a movie-camera maker, Vitec sells tripods and bags for photographers under brands including Manfrotto and National Geographic. Rhys Williams joined Vitec at the end of 2001 after four years of falling profit. He streamlined manufacturing, transferring production to China and Costa Rica.
`Better Organized'
``The current management team developed the group from one that was a bit of a mess to a group that was better organized,'' said Nick Evans, who manages the $247 million M&G Investment Trust, including 3.35 million shares, or an 8 percent stake.
Vitec has dropped 15 percent this year, compared with a 1.9 percent decline on London's Alternative Investment Market for smaller U.K. companies.
``The market has put a cyclical discount on them that is not born out by the reality,'' said M&G's Evans.
Michael Larson, who leads an investment team that manages the Bill & Melinda Gates Foundation's assets, didn't return an e- mail and phone calls seeking comment.
To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net
Last Updated: May 24, 2008 19:01 EDT
AI
