ITE faces a long slog

Exhibitions company ITE is set to make a return as a FTSE mid-cap company next month after its shares rose by more than 170 per cent per cent in the past year - and that should boost interest in the group as mid-cap tracker funds rebalance their holdings.

Indeed, after ITE's first-quarter trading update appeared at the end of January, the shares went on to touch a fresh 52-week high of 146p earlier this month. The update reiterated cautious optimism, with management saying that conditions had remained stable and that bookings were going well. Although, it did point to exhibition space sales falls between October and December and pointed out that, overall, quarterly revenues had dropped from £19.7m to £15.1m - largely reflecting a 23 per cent sales slump from October's Kazakhstan Oil & Gas Exhibition (KIOGE). One of ITE's 10 best money-spinning shows, visitor numbers there were down about 5 per cent on 2008 at 7,974. At its peak, KIOGE was attracting almost 12,000 visitors.

Still, some of ITE's smaller exhibitions held up pretty well, with December's Paperex show in Delhi showing sales space up close on 10 per cent to 7,300 square metres. The balance sheet remains in good shape, too, with net cash reported at £29m, while ITE has already contracted £69m of revenues for this year - that's 67 per cent of the market's full-year expectations.

Numis Securities says…

Buy. The update reported that forward bookings were in line with expectations and, encouragingly, that local sales were showing signs of improvement. We see ITE as a structurally robust company that's well positioned to benefit from recovery in its core markets and the group is one of our best picks for 2010. We are holding our forecasts at this early stage of the year and expect a pre-tax profit of £32.5m for 2010, EPS of 11p and a 5.7p dividend - but view 2011's forecasts as particularly conservative given the positive biennial phasing of the Moscow International Oil & Gas Exhibition. Our target price stands at 170p.

Investec Securities says…

Buy. ITE's business-to-business (B2B) exhibitions offer structural mid-term growth and cyclical upside as macroeconomic conditions improve during 2010-11. This looks like an attractive investment theme for 2010 and ITS is one of our favoured B2B investments. Certainly, the forecast enterprise value to cash profits multiple - at 8.8 times for 2010 - is in line, or at the lower end, when compared with that of its B2B peers. But we believe that a premium rating is justified given the focused management, the cash pile, the recovery potential and the strong market position.