Derek Pain: Booker is well-placed for the rocky road ahead

No Pain, No Gain
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The Independent Online

Booker seems to have missed the stock market party. Late last year the shares topped 50p but as prices in general continued to forge ahead – Footsie has hit a 21 month high – the nation's biggest cash and carry chain was in a more somnolent mood. The shares have been as low as 42p this year and, at the time of writing, bump along at around 45p.

Yet the group is performing exceptionally well. An update on last year's trading said final quarter sales were 3.8 per cent higher with the year's turnover reaching £3.4bn, up 6.5 per cent. Internet sales, at £407m, rose 62.8 per cent.

For good measure the passage to India – it opened its first outlet there last year – is making "encouraging" progress. So why is the stock market so unappreciative? The country's grim economic plight is the answer. There is a feeling that the inevitable tax increases and the general belt-tightening that we will all have to endure after the election could impact on Booker with a vengeance. I think such anxiety is misplaced. It's true that consumer stocks could be in the firing line but with its vast range of goods, growing customer base and low overheads it is well positioned for any downturn.

In a sense it is in the same shopping trolley as Tesco. And Tesco shares are around a 12 month high although rivals, Wm.Morrison and J Sainsbury, have stuttered a little in recent weeks.

With last year's endeavours likely to produce profits of £53m against £47.2m, Booker's shares are not expensive. At the current price the no pain, no gain portfolio is almost doubling its money and I expect more rewards to accumulate.

I wish Lighthouse, operating in an entirely different environment, had performed as well since joining the portfolio. Unfortunately, the loss is quite painful with the shares residing at 10.25p against a 17.5p-buying price.

Still, the financial advisory group, is in profit – and paying dividends. Revenue and gross profits each rose 12 per cent last year reaching £60.7m and £17.3m respectively. Pre-tax profits emerged at £93,000 (against a loss of £8.5m) and a figure nearer £1m, accompanied by a higher dividend, should be possible this year.

The group could face problems from the signalled shake-up in the world of financial advisers. However, it looks as though the eventual beneficiaries will be the major groups, such as Lighthouse with a network of 900 advisers.

The group is also cash rich with a bank balance of £13.4m, a little more than its capitalisation. Although this particular portfolio adventure has failed dismally to live up to my early hopes, I intend to hold on.

Shares of Printing.com, the portfolio's longest serving constituent, have fallen to 31p, uncomfortably close to my 2004 buying price, following a profits warning. The company said trading had "softened" and profits would be "marginally" below the £1.85m the stock market had pencilled in. Such a pronouncement is disappointing as the group seemed to be containing recessionary influences.

Still it seems to be a fairly gentle setback and a slight profits decline should not impact on the dividend, leaving the near 10 cent-plus yield in place. Naturally I am distressed by the performance of the shares – after all they once touched 75p – but one crumb of comfort must be the group's progressive dividend policy which has generated splendid returns. So, perhaps, Printing.com still deserves portfolio membership. But without a quick trading recovery the payment level could be threatened and the income attraction would disappear. If that happened I would have to consider dropping the shares.

Finally, Nighthawk Energy, the US focussed oil and gas group. Its shares seem to have settled down, albeit at a lower level, after their recent mauling.

Despite the turmoil, stockbrokers Daniel Stewart and Westhouse retain buy recommendations. Analyst Richard Nolan, the Stewart man, is looking for the shares to reach 45p and repeats his view that the group should be in profit this year.

Peter Bassett (Westhouse) says the group "is establishing a very significant base". Some researchers have in the past year or so produced share valuations exceeding 200p.

I would not be surprised if a few influential shareholders, plus some directors, took advantage of the still bombed out share price.

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