Derek Pain: A more demanding stock market has led to some surprises

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The Independent Online

Has the stock market taken a dislike to the no pain, no gain portfolio? The depressing way that perfectly reasonable results by some constituents have been greeted must at least raise the possibility that the City has become even more demanding.

Last week I indicated that interim figures from the brewer Marston's deserved a more appreciative reaction. The shares dropped sharply before I had put pen to paper. They then recovered. This week I am complaining about the way the shares of two other members, the cash and carry chain Booker and support services group Mears, have responded – perhaps only initially – to what I regard as acceptable announcements.

A quick examination of some other mid and small caps that are not involved in my portfolio has underlined my belief that the stock market, in a year when shares are expected to make considerable headway, wants more buoyant displays by companies than in the past.

Quite a few observers have made the point that some pretty outstanding company performances are needed to keep enthusiasm on the boil. So what was regarded as more than acceptable last year is now seen as mundane.

After all, many share ratings have increased as prices have advanced, so adjustments to attitudes could be justified.

Even so, I am disappointed at the reaction to Booker's year's performance. Sales rose 17.3 per cent to £4.7bn, with pre-tax profits emerging at £122.1m against £92.1m. True, some of the revenue advance stems from the Makro acquisition, but Booker's own returns were up 2.1 per cent. The group adds that sales in the first seven weeks of the current year were ahead of last year's corresponding display, although competition (no doubt represented by supermarket price cutting) is intense.

Booker is increasing the year's dividend by 22 per cent to 3.2p a share and, with cash reserves up from £77.2m to £149.6m, is launching a 3.5p a share special dividend. A similar exercise is anticipated next year.

The group's shares hit a 176.5p peak in March, about the time a trading update was circulated. Since then downward pressure has materialised. Before the figures the price had dipped below 140p; there was a minor rally when the results were published last week, but as I write the shares are 137.1p, a level last seen in September. I realise they are still highly rated, but the Booker display pales against a stock market not far from its all-time peak.

Mears has suffered a similar fate. Before and after it produced a satisfactory trading statement its shares lost their buoyancy. I do not know whether, like Booker, some bright City sparks had suggested that trading had deteriorated. I think not. Yet other than the usual stock market wheeling and dealing, there is no other explanation than the demand for higher expectations.

Mears shares touched 542p last month. They are now around 472p. Yet the statement talks of trading in line with expectations and says the social housing side enjoyed "solid" performances and the home care division "progressed strongly". It adds that new contracts worth £110m have been signed so far this year and 94 per cent of expected turnover for this year and 72 per cent of next year's figure have been lined up.

Stock Spirits has, however, resisted any stock market hangover. The shares are little changed at around 290p after a first-quarter statement that said it had started the year well but higher duties imposed in Poland had "negatively impacted", as expected, on the spirits industry.

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