Derek Pain: An odd quintet, to be sure, but these five are poised to take off

No Pain, No Gain
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The Independent Online

It's been a busy few weeks for some constituents of the No Pain, No Gain portfolio. Booker and Mears produced trading updates, Rivington Street Holdings revealed its yearly figures and Patsystems and new recruit Avation weighed in with expansion details. Both Booker, a cash-and-carry chain, and Mears, a support services group, offered upbeat progress reports. Booker said sales in the last 16 weeks of last year were up 7.2 per cent and it expected to open two outlets in India in the spring.

Mears, which can now claim to be the nation's leading social housing and home care group, reported trading in line with expectations, with a record level of new contracts. In a recent message to staff, chairman Bob Holt said the group's outlook had never been better. "This period of belt- tightening is for us an opportunity, not a threat," he declared.

Booker's shares, as I write, are not far from their peak and those of Mears are at their highest for more than two years with analyst Guy Hewitt, at Investec, looking for 365p. The portfolio is in the money with both stocks.

Rivington continues to make progress with the year's underlying earnings before interest, tax, depreciation and amortisation coming out at £1.1m, although its takeover spree and other expansion helped to push the group into the red at the net level.

Still, I believe the seeds of future prosperity have been sown and there is a good chance that pre-tax profits approaching £3m could be achieved in the current year. Revenue in the early months is already "materially ahead".

To underline its confidence, the group, with interests ranging over corporate support, conferences, fund management, public relations, software and stockbroking, as well as its original business of publishing internet tip sheets, is paying a maiden dividend of 0.25p a share. An earlier scheme to replace dividends with tender offers has been dropped, but it intends to continue with shares buybacks.

The fund management side, from a standing start three years ago, has performed exceedingly well with its Smaller Companies Gold Fund (up 127 per cent) topping the unit trust pile last year and another small-cap exercise achieving 80 per cent growth over three years. Rivington now has about £50m under management compared with £14.8m at the start of last year. Other achievements include launching the cheapest online stockbroking operation, JPJshare. Rivington put through seven takeovers last year. I would be surprised if it has lost its bid appetite and there is talk of another software house being its next victim. The portfolio descended on the Plus-traded group in November at 27.5p a share; the price is now about 33p.

Patsystems, which is involved in a variety of electronic trading platforms, has added another string to its bow – the newly established Vietnam Commodity Exchange, where it is a key technical adviser. In November, it added an Argentinean commodity exchange to its interests. Its shares, though marginally in the black, have turned in a subdued performances since No Pain No Gain recruited them 18 months ago.

Finally, Avation. I added the shares to the portfolio at 83.5p, not the 90p inadvertently stated last week. The aircraft leasing group currently has 12 aircraft on its books. Its plan to embrace up to a further 18 could dramatically transform prospects. There is, of course, many a slip 'twixt cup and lip. And if the expansion goes to plan, benefits will probably not start to flow until next year.

Still, when the additional aircraft are all up and flying, back-of-the-envelope calculations suggest that its assets could increase from the present 127p a share to above 500p. Until now, the group has relied on second-hand aircraft. Now it plans to buy new machines and believes it will be able to get low-cost finance from possibly the French and Italian governments (for the jointly produced ATR aircraft) and/or the Canadian government (Bombardier).

The aircraft will be leased for 10 years to Skywest, an AIM-traded Australian airline that will operate the craft for another "down under" group, Virgin Blue.

Researcher GE&CR, an offshoot of Rivington, estimates that Avation, planning investment road shows, should produce profits of £3.55m this year and, as the new aircraft start to fly, about £4.22m next. It has a share target of 150p.

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