A gamble, but this one looks on the right track

Derek Pain - No Pain, No Gain
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The Independent Online

Two weeks ago I drew attention to Availeon, one of many little stock market companies lacking significant achievement but overflowing with ambition. Today I offer Fastrack, another tiddler with a wretched record.

Two weeks ago I drew attention to Availeon, one of many little stock market companies lacking significant achievement but overflowing with ambition. Today I offer Fastrack, another tiddler with a wretched record.

For any investor prepared to take a chance, it could turn out rewarding. But it is in an even more difficult position than Availeon, a butcher-turned-contract caterer that has still to make a profit after six years on the stock market. It is still not clear whether Availeon has hit on the right recipe for overcoming its past and emerging as a successfullong-term investment.

Fastrack, an overnight delivery service, actually produced a profit of £75,000 in 1998. That was a false dawn. It has chalked up severe cumulative losses over the past six years, more than £20m, including a £2.1m deficit last year. The delivery men were still in the red in the first four months of their current year.

Not surprisingly, it is short of cash. To provide the necessary working capital it is tapping shareholders, hoping to raise £3.5m through a rights issue (offering 20 new shares for every 39 held) and a further £1m by granting options to its controlling shareholder, the Tufton funds, managed by the Bulldog Partners fund management group.

Chairman Douglas Ash,ex-Ocean group, says bluntly that this is the "only available means of enabling the group to continue trading on the basis of its current plans". If the money is not forthcoming, and the Tufton cash is dependent on business targets being met, prospects are bleak.

Yet such a grim scenario masks what could be one of the best internet-related stories. Certainly, Fastrack's shares, 9.75p against an 8.5p rights price, look a better bet than many of the dot.com plays.

Its next-day delivery service for parcels and freight operates from 55 locations (46 of them franchised) with more than 400 vehicles. Much of its activity is business-to-business delivery although it has a home delivery service for e-commerce and internet retailing.

The business-to-business operation is adaptable for home delivery and should make Fastrack one of the best-placed companies to take advantage of the internet revolution. It must be in a stronger position than old economy operations such as Express Dairy which is banking on getting a share of the business through its army of milkmen. Fastrack's home delivery side already has deals embracing computers, food and drink and fashion clothing. They are testing a same-day delivery service for one internet customer, LastOrders.com, an online off-licence business.

It seems the desperate need to grow rapidly into a national player has stretched Fastrack's resources, with cash ploughed into its network of depots and its fleet. With many newish operations there is often a long, uncomfortable gap when overheads mount alarmingly before the entrepreneurial dream becomes reality and trade picks up, wipes out costs and produces profits.

But the group's record must raise doubts whether its franchise approach is the right one and whether it has the muscle, and perhaps ability, to hit the jackpot.

I cannot stress too strongly that Fastrack is not for the proverbial widows and orphans. Only investors who can afford to end up with bruised, battered and lighter wallets should contemplate getting involved. Yet if chief executive, Andrew Ducker, has got the game plan right, then the shares would represent a splendid old economy opportunity to cash in on the new economy.

Fastrack, known as Pacific Sales until two years ago, has sold shares five times to raise capital. This year, I believe on rumours of a US takeover strike, the price touched 16.25p; the high point over the past five years is 36.5p.

The Tufton investors have displayed remarkable dedication to Fastrack and they have more than half the capital. They are underwriting the cash call and seem bound to increase their stake, perhaps to approaching 70 per cent.

Jeremy Brassington, a managing partner of Bulldog Partners, is joining the board, which includes the veteran Nat Solomon, an experienced and widely respected boardroom man. Perhaps the support is an indication that Fastrack is, shall we say, on the right road?

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