Derek Pain: A loss so big it's worth waiting for a recovery

No Pain, No Gain

It's the best and the worst this week. Booker, the undoubted star of the no pain, no gain portfolio, has chalked up another commendable performance but SnackTime has managed to confirm its role as the weakest of my dozen constituents.

I can imagine that some readers may be getting a little tired of my laudatory comments on Booker; so I intend to dwell in some detail on SnackTime, a vending machine group that so far has lost the portfolio approaching 80 per cent of its £5,000 stake. It is always humiliating to descend on a disastrous investment and I can only apologise for the portfolio's collection of misadventures. We all know that shares can go up as well as down, but the portfolio seems to have encountered rather more than the acceptable allocation of duff stocks in the past few years. This is no doubt due to its reliance on small caps. At one time they were the key to making money. But, as I keep complaining, they are, with a few exceptions, now utterly unloved as investors eschew what are regarded as the more riskier elements of the stock market. This attitude will change – but when is anybody's guess.

The portfolio arrived on SnackTime, which ranks as the nation's third largest vending machine operator, at 119p. The shares subsequently approached 200p but the price, as I write, is a mere 28.5p, capitalising the company at £4.7m.

In its early days of stock market life the group was highly regarded. It even successfully absorbed a rival firm. But then it acquired Vendia, another vending group, in a near £11m deal. In effect, the takeover doubled SnackTime's size. It has proved such a mighty swallow that the group appears to have suffered from chronic indigestion. Whether it appreciated the problems it assumed when it absorb Vendia is unclear. Even so, its difficulties have been intensified by the recession and the much higher costs the group has experienced.

But it appears the re-organisation – a "challenging" exercise in the words of its new chairman, Jeremy Hamer – is now largely complete and "there are encouraging signs of progress being made across the group".

Mr Hamer became executive chairman in May, replacing Blair Jenkins. He is a former chairman of Inter Link Foods where the portfolio, thanks to a timely sale, nearly doubled its money.

In the year to end-March, SnackTime suffered a loss of £772,000 on revenue up 28 per cent, reflecting acquisitions – rather weaker than I expected.

As a vending machine operator the group embraces both snacks and drinks. Most of its outlets are company-run but it has a franchise business, Snack in the Box, that perhaps offers the best chance of non-acquisition expansion. In recent times directors, including Mr Jenkins, have picked up 345,000 shares. A modest outlay, but perhaps a significant indication of their confidence that the group's performance will improve. At least for the time being the portfolio intends to retain the shares. There seems little point in selling at this stage. I should have sold earlier but once again I have not been sufficiently ruthless.

Now to Booker. Sales in the first 12 weeks were up 1.7 per cent although tobacco income declined. Following a 24 per cent rejection of its pay report at last week's annual meeting, the cash and carry chain said it would re-examine its policy. The shares are around 90p while the portfolio paid 24.5p. I have no complaints about the group's remuneration policy which, for the second year running, has come under the spotlight.

Finally, Northern Petroleum. I have often discussed the yawning gap between the oil and gas group's assets and share price. Analysts Peter Bassett and Andrew Matharu at the stockbroker Westhouse Securities reckon there is "considerable value embedded" in the group's portfolio and calculate that asset value could be as high as 351p a share. The analysts believe the share price discount to their estimate is far too large and have settled on a 123p target price. The portfolio descended on Northern last summer at 68p a share; after approaching 100p the shares are now around 71p.