I have recruited two shares to the no pain, no pain portfolio. They are Northern Petroleum, an oil and gas group, and the Spirit Pub Company, the chain that arrived on the stock market following a demerger from the struggling Punch Taverns. With the departure of Clarity Commerce Solutions and Lighthouse, my little share exercise was reduced to a dozen constituents.
The enlisted stocks will temporarily lift the portfolio's strength to 14. But the Capital Pub Co, following the bid from brewer Greene King, is due to leave its ranks quite soon. So to retain my ambition of presiding over a diversified portfolio with a membership of 16 or so, I will have to add a few more stocks in the weeks ahead.
This is, in my view, an excellent time to be share buying. Even if prices fall further long-term investors prepared to go against the tide will be eventual winners.
The decision to add Northern will come as a surprise to regular followers of this column. They will recall that following the disastrous involvement with Nighthawk Energy, I indicated I would steer clear of resource groups. But successful investment requires a little flexibility and the occasional change of mind. My instincts tell me that Northern, even in these troubled times, looks remarkably cheap, hence my about-turn.
The inclusion of Spirit is easier to explain. Its shares, like those of Northern, are on their knees. Yet the group with a collection of managed and leased pubs seems to offer an irresistible opportunity to enjoy food and drink. I would not have contemplated adding the shares if I was not about to call time on Capital. After all one "pure" pub chain at a time is quite enough. Even so, over the years the portfolio has enjoyed riches from its involvement in the drinks industry with Allied Domecq, Burtonwood, Merrydown and Scottish & Newcastle falling to lucrative takeover strikes.
Capital and Spirit are different types of pub chains. Yet there is no reason to believe Spirit, with its long established Chef & Brewer brand, will not fall victim to a strike. Already rival managed pub chain, Mitchells & Butlers, is viewed as a possible predator. It's clear that Spirit, where I am already a shareholder, faces a long, hard slog to realise its full trading potential. An idea how it is progressing should emerge next week when it makes its first trading statement as an independent company. It started life with cash in the bank (£113m), more than 500 leased outlets (no doubt the best from the Punch estate) and some 800 managed pubs. Punch, once the nation's biggest pub chain, is left with about 3,500 outlets. The split is not dissimilar from the favoured banking manoeuvre that has appeared in recent years when the good and the bad elements are consigned to separate existences.
Northern is a traditional oil and gas explorer and producer. A few years ago its shares were around 200p. They are now below 70p. Even before the stock market turmoil the group endured a crash of its own making. The shares slumped to 76p from about 130p following a surprise reduction in its reserves estimate and production figure for its operations in Holland. Yet overall output this year is expected to increase. Besides its Dutch interests the group operates in Italy, Guyane, Spain and this country. There are high hopes its Italian interests, largely in the South Adriatic, will provide some excitement.
Unlike many oil and gas players, the group generates cash, is free of external debt and has money in the bank. I believe its upside potential is considerable. And, like Spirit, trading success is not the sole reason for my interest. After the share decline there seems to be every reason to regard the group as a sitting duck for a takeover strike.
Still bid activity is merely a possibility. I like Northern on trading considerations. The shares are cheap, a factor not entirely due to the stock market's current pessimism. In different ways Spirit and Northern shares reflect specific influences related entirely to the two companies. The portfolio has descended on Spirit at 42p, where the chain is valued at £277m, and acquired Northern at 68.0p, a price that yields a £63.6m capitalisation.Reuse content