Derek Pain: A sudden burst of activity but sadly little effect

No Pain, No Gain
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The Independent Online

The no pain, no gain portfolio enjoyed a round of exceptional activity during my enforced absence, with half the constituents creating some form of stock market interest. It was similar to the old story about buses – you endure a long wait and then a convoy arrives.

Unfortunately, my little collection of shares has not benefited as much as I would have expected from the various displays. The two that made profit statements failed to inspire investors, and trading updates produced negligible influences. With the exception of SnackTime, the vending group, the rest of the outpourings left few positive impressions.

SnackTime, the dog of the portfolio, really surged ahead – at one point more than doubling. Such a performance would have been highly satisfactory if the shares had not been recruited at 119p and once approached 200p. The price, as I write, is 16p, capitalising the company at a mere £2.7m against more than £20m at one time..

The vending machine group, which arrived on the stock market in 2007 at 144p a share, has already warned that the next set of profits will fall "significantly short" of earlier expectations.

It seems to me that the group, the third largest vending machine operator in the country, attempted to expand too quickly. It has also been dealt savage blows by the recession. Not surprisingly, Jeremy Hamer, the recently installed chairman, has instituted a rescue package. The much-needed extra cash is being raised in two parts. New banking facilities, which seem quite reasonably valued in the circumstances, have been agreed with the Co-operative Bank.

The rest of the inflow will come from an issue of new loan notes. Many of the £1m five-year notes have been provisionally taken up. Shareholders are being asked to subscribe on the basis of one £1 loan note for every 16.35 shares. Half the notes will be convertible at 10p a share, with the rest earning interest.

The investment group Elderstreet, a backer of SnackTime, is deeply involved in the cash raising but it seems that some shareholders have already turned their backs on the proposal. The portfolio cannot, of course, subscribe. Under its rules of engagement each investment is restricted to the initial £5,000 outlay.

The two profit figures came from the tenpin bowler Essenden and the support services group Mears. Essenden's recovery continues, with adjusted profits of £1.5m, although there was actually a £71,000 "true" loss. Mears produced profits of £31.7m, a shade higher than the previous year. Bedding in its loss-making rival Morrison Facilities Services, following last year's takeover, is costing money and could affect the current year's figures.

The cash and carry group Booker, with provisional Whitehall approved to buy rival Makro, and the Spirit pub chain suffered from trading statements. Although Booker kept up its exciting sales push, the shares slipped back, and Spirit's shares look as flat as yesterday's pint after it reported disappointing quarterly figures. Still, it says it is on track to meet the full year's estimates.

Northern Petroleum continues to disappoint. The group could be near to selling its Dutch oil and gas operations, where a revision has chopped 30 per cent off expected output, and has moved into Canada, acquiring some promising leases. Exploratory trans-Atlantic drilling could commence soon.

With the Dutch and British businesses probably worth about £40m and its modest stake in what appears to be a rich oilfield off South America valued at some £60m, the group's shares are clearly undervalued.

At 42.5p a share Northern is capitalised at £40.5m, so Canada, Italy and some other unidentified interests are accorded negative values by the market. Stockbroker estimates suggest the shares should be above 100p. I am aware of valuations of 123p and 110p. But the market refuses to listen.

Findel, the home shopping and educational supplies group, rounds off this bulletin. It indicates that profits will meet expectations. The group has sold its healthcare division for £24m and decided that its shares, around 5.4p, need more ballast, say 100p, and introduced a consolidation, with 20 shares becoming one.

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