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Derek Pain: Argo fund could be an opportunity full of Eastern promise

No Pain, No Gain

When the stock market behaves irrationally, many investors are tempted to examine alternative ways of safeguarding – even improving – their financial position. Commodities, postage stamps and wines are among the most frequently cited havens. Off-beat shares are usually ignored. Yet they can represent intriguing and potentially rewarding opportunities for anyone who wants to retain the often overlooked dealing convenience provided by a share quote.

My attention has been drawn, by a former stock market reporter of The Independent, to a virtually unknown vehicle called the Argo Real Estate Opportunities Fund, an AIM-traded property investment company with interests in Romania and Ukraine. I am not suggesting all and sundry should rush out and buy the shares. After all, it qualifies as an emerging market player and I have, in the past, expressed doubts about such investments being suitable for small shareholders. And the former communist countries in Eastern Europe have not always proved a happy hunting ground for small-time British investors. In fact, I came a cropper with one such venture. But I suspect adventurous, experienced and well-heeled investors who appreciate the risk-reward equation, would be prepared to have a serious look at what is, in effect, a much smaller, Eastern European version of London-quoted blue chip, Capital Shopping Centres.

The Opportunities Fund, capitalised at £12.4m against CSC's £2.9bn, is currently making City ripples because it is issuing shares in exchange for two more shopping centres to add to the three already in its estate. But it is a complicated, inter-related deal.

A little over 298 million shares, currently priced at 0.04p, are being issued to funds close to Argo Capital Management (Cyprus), which is run by Argo Group, a fund manager started in 2000 and listed on AIM three years ago. Argo Group, through a subsidiary, manages the Opportunities Fund. The deal will lift the Argo Group's interest in the shopping centre business to 72.4 per cent. This holding is expected to be reduced by non-group acquisitions.

The takeover will make the Opportunities Fund the largest edge-of-town shopping centre operator in Romania. An investment road show, due to take place in the next few weeks, will no doubt underline the simple fact that on traditional measurements the shares are seriously undervalued. Not only has the company moved into profit, but conservative estimates suggest the shares are trading well below their true asset value. And there are signs the Romanian and Ukrainian economies, after a rough patch, are improving. Some retailers in its shopping centres have had to be helped out, but there are hopes such concessions will not be needed much longer.

The Opportunities Fund came to AIM in 2006. Top price since then is around 1p. It is one of the funds conducted by Argo Group, an investment manager created by barrister Andreas Rialas who runs the business, specialising in global and alternative investments, with banker Kyriakos Rialas. The pair are significant shareholders in the group which, with its shares at 15.25p, is valued at £10.6m.

The Opportunities Fund is not destined for the no pain, no gain portfolio. It is not the sort of investment that attracts me. But the parent Argo Group could stake a strong claim for membership. After all, it is profitable and dividend-paying, with the shares relatively lowly rated and offering a handsome yield. It is a fund manager with a diversified international spread which makes it a seemingly resilient investment. And the recent record is quite impressive.

Finally, an existing constituent, Avation, has clinched a $152.2m 10-year loan, carrying a fixed 5 per cent interest rate. It forms part of the aircraft leasing group's programme to provide further aircraft to SkyWest, an Australian airline that has fixed up a co-operation deal with another "down under" group, Virgin Australia. The first of the batch was recently delivered.

Like most shares, Avation has lost some height in the past few weeks. The price did hit 120p but, at the time of writing, is 104p, capitalising the group at nearly £41m. The portfolio descended on the shares in January at 83.5p. At the same time it alighted on the Capital Pub Co which, following the takeover strike by brewer Greene King, will soon depart at a handsome profit.