Derek Pain: Animalcare is all set to come roaring back

No Pain, No Gain

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The Independent Online

Animalcare has failed to enhance the no pain, no gain portfolio since recruited almost a year ago. The shares have rarely stood above the 171p buying price and, after a profits warning, fell slowly but decisively. They are, as I write, around 136p. Figures, in line with the lower expectations, have not surprisingly made little impact.

Still I am, at least for the time being, sticking with the shares. The portfolio clearly alighted on them at the wrong time. There are signs that the climate is getting better and although it could be some time before we see 171p again the group is at least now heading in the right direction. The veterinary products concern is also in agreement with my desire to bolster the bank balances of shareholders. In spite of the disappointing profits performance, it has increased its dividend and I believe there are indications it will continue to adopt a progressive payments policy. Current yield is 3.3 per cent and if profit and dividend hopes are realised the return should increase. So the yield looks quite reasonable in these low interest rate days that, some believe, will continue to at least 2015.

Of course, the retreat from my buying price is disappointing. But the dividend attitude does provide some consolation.

The group's "true" pre-tax profits were £2.1m against £2.9m. At the adjusted level profits were £2.3m compared with £3m. Stockbroker N+1 Singer (the result of a merger between Singer Capital Markets and N+1Brewin) estimate that this year Animalcare will make an adjusted £2.6m. Analysts Chris Glasper and Sahill Shan say the group endured an "annus horribiles" last year but is now back on track. Trading so far this year is said to be "comfortably above" last year's display.

Another constituent, Marston's, has often been below my 95p buying price. My faith in the brewer and pub owner is now being rewarded as the shares have hit 120p. The group, like many others that have insisted that food and beer are the ideal blend for these straitened times, has continued to shrug off recessionary influences that have so devastated many drink-led pubs.

In a year-end trading update, the brewer of such hand pump beers as Brakespear and Pedigree said like-for-like sales at its increasing spread of managed pubs were up 2.2 per cent and the rest of the estate (composed of franchised, leased and tenanted outlets) rolled out operating profits some 3 per cent higher. Beer sales rose 2 per cent. The group has been busy building pub/restaurants for a few years to engage more fully in the casual eating-out revolution. Last year it opened 25 outlets and in the next 12 months or so could add up to another 25. Chief executive Ralph Findlay says returns from the newly opened pub/restaurants are "above target".

Marston's, too, likes to offer dividend comfort to shareholders. For a long while it enjoyed a yield in the 5 per cent and 6 per cent categories. The share price advance has, of course, cut the historic return to around the 4.9 per cent level. The interim dividend was lifted and I expect a modest increase in the final payment. Although Marston's shares are riding at around their best level for more than a year they are still a long way from the price hit some years ago when brewing and pubs were riding high.

Finally G4S which, despite unseemly take-over and Olympic shenanigans, remains a portfolio member. The security group has returned to the acquisition trail in Belgium, paying almost £3m for a fire and safety personnel and equipment enterprise there.

I have described G4S as an Indian rubber share; it keeps bouncing back. After shareholders rebelled against buying the Danish ISS catering and security group for £5.5bn the shares slumped alarmingly. They recovered only to suffer another roasting after the Olympic fiasco. The price has let bygones be bygones and improved to 269p, giving the portfolio a tiny but welcome profit. Even if its Olympic problems do reputational damage, I don't expect any reductions in dividend payments.

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