Derek Pain: Cash-and-carry chain Booker shows star quality

No Pain, No Gain
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The Independent Online

Booker, the cash and carry chain, is undoubtedly the current star of the no pain, no gain portfolio. Last week's results sent the shares above 70p. The stockbroker Evolution expects them to hit 80p, and raises the intriguing possibility that one day they could become constituents of the Footsie, our leading share index, composed of London's top 100 shares.

Although at 70p capitalisation is approaching £1.1bn, Booker is still regarded in some quarters as something of a Cinderella company. Its business of operating warehouses which retailers visit to pick up their supplies puts it into a sort of no-man's land – not retailer, nor wholesaler – as far as the City is concerned. But the group deserves much wider attention than it has received, and its latest figures should ensure it wins a more dedicated following. Pre-tax profits in the year ended in March hit a peak of £71.4m, up from £57.2m, and the year's dividend is lifted 31 per cent to 1.67p a share. Sales rose 6.2 per cent to £3.6bn.

The out-turn beat most City forecasts. Indeed £71.4m is around the target many had predicted for the current year. Now there are thoughts that Booker should this year achieve about £77m, although that estimate could be revised upwards.

Booker has made a good start to the year, and expects to "continue to make progress". Of course it operates in a tough environment but then, I suspect, every company in the land is battling an unhelpful trading climate. Clearly its customers – mainly corner shops, caterers and publicans – are feeling the pinch. Yet more and more seem prepared to obtain some (or all) of their supplies from Booker as its few frills, low-cost establishments help them to combat inflationary influences. The group also operates delivery and internet services, targeting small traders as well as top names, that are winning increasing support.

The portfolio descended on Booker in January 2009 at 24.5p a share. Progress has been remarkable, and I would not attempt to dissuade any reader that followed its lead from at least top slicing. Indeed selling enough shares to provide a free ride would seem a sensible course. The portfolio cannot undertake such a manoeuvre as it is bound to invest £5,000 into each constituent. The only way it can realise a profit is to sell its entire holding, but I am not prepared to yield to such a temptation at this time. Although the portfolio is a buy and hold vehicle it is not, like any investor, averse to taking a profit. Witness such past sales as Prezzo and, first time round, Mears. However, with Booker already providing such a handsome reward, I feel there is a sufficient profit cushion to hang around and see what transpires. I am prepared to go along with Evolution's expectation that there is much more to come.

Another constituent, the brewer Marston's, rolled out an encouraging trading update. Its shares have not achieved the type of progress that Booker has attained. Still, we are in profit. Recruited at 95p in August 2009, as I write the shares are 110p, having reached 116p. I regard Marston's as a long-term constituent that will eventually prove to be highly rewarding. Dividends are not included in the portfolio's calculations but it is worth noting that the yield is above 5 per cent, a factor that should influence the shares in these low interest rate days.

The group, with such hand pump bitters as Brakspear, Pedigree and Ringwood and around 2,150 pubs, produced interim underlying pre-tax profits up from £27.8m to £29.2m. The "true" pre-tax figure, including exceptional items, was £35.6m (£26.3m). Interim dividend is an unchanged 2.1 pence a share.

In the first half year sales increased by 2.8 per cent, but over the first 32 weeks, which included Easter and Mother's Day as well as some summery weather, the group recorded a more heady advance. The brewing side did well; so did the group's managed pubs.

As with most other pub groups, tenanted and leased outlets lagged behind, recording only modest gains. In past years most brewers owned pubs. Not any more. In these stand-alone days many pubs are outside the beerage, although Marston's demonstrates the value of the old vertical integration – combining retailing with producing and wholesaling.

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