Derek Pain: Disappointed and dismayed by setbacks

No Pain, No Gain

I am dismayed by the performance of G4S. The no pain, no gain portfolio recruited the world's biggest security group nearly three years ago. Since then the shares have suffered a trio of embarrassing setbacks.

When the portfolio descended on the stock it was apparent that security was becoming increasingly important in this uncertain world. There was, therefore, every chance that with manual guarding and the sort of sophisticated equipment that has become increasingly available there was every chance of a very profitable investment.

But G4S has let the side down. The first two share retreats were self-inflicted. And it is difficult to avoid the impression that the group cannot completely avoid some blame for the third – and latest – reverse.

The shares were doing well until the first calamity caused a collapse. An abortive £5.5bn takeover bid for ISS, a Danish-based catering and security group, did the damage. G4S was forced to abandon the ambitious acquisition because its own shareholders created such a fuss. Then came last year's Olympic fiasco, when the group failed to provide enough security personnel. So servicemen had to be called in to provide the necessary cover.

G4S has now added to the catalogue of woe by proffering a profits warning. Once again the shares have slumped. As I write they had crashed to 248p, but then moved to 256p. Before the latest onslaught the price was above 300p.

First-quarter profit margins have fallen 0.6 per cent, due to various influences. There does not seem much hope of a recovery in the current year. The question I am now confronted with is: does the group deserve to remain in the portfolio? After all, most leading shares have been in splendid form this year, yet the portfolio is out-of-pocket as it paid 264p a time.

Although many shareholders have obviously been dispirited by the profits warning, some City analysts seem prepared to stick with the shares. The investment house Canaccord Genuity is one. It is holding on to its buy recommendation, although cutting its target price to 300p from 325p.

G4S's role in emerging markets is one factor behind the analytical support from some quarters, but its role in the more developed world is often under pressure. More will be revealed next month, when G4S's management is due to meet City analysts and fund managers.

The price recovered from the first two disasters. Perhaps it will again, reinforcing the shares' "Indian rubber" tendency.

Another share causing anxiety is Avation, the aircraft leaser. It has unveiled a cash-raising exercise, selling new shares at 60p. Shareholders are being offered 0.0975 of a share for each one held. They can, if they wish, apply for extra shares should any become available. The offer, which is underwritten, will produce £2.5m. First reaction was to knock the shares down some 12p to 64p; they are now 66p.

I am surprised the group opted for an equity exercise. I was under the impression that the group was going to use debt to complete its scheduled aircraft deliveries to Virgin Australia. But although borrowings are part of the programme, it seems an equity contribution is required.

The portfolio cannot indulge. Under its rules of engagement investments must be restricted to £5,000. It is also worth repeating that dividends and dealing costs are excluded from my profit calculations.

Avation has been a disappointment. The shares arrived at 83.5p and I watched them fly to 120p. But a few developments have impacted on sentiment. The cash call has merely compounded what is clearly stock market disillusionment.

Still, Avation seems to be making progress. The stockbroker WH Ireland has forecast current year's profits of £7.2m, a sharp increase on the previous year.

Although the portfolio has more winners than losers and remains in profit, I am becoming increasingly disenchanted with my contingent of losers. G4S, Avation as well as Northern Petroleum are recent additions to the in-the-red brigade.

I feel sell action is needed. And I intend to be quite ruthless when it comes to adjusting the portfolio in the near future. I am a long-term investor and believe frequent and hasty share dumping is often regretted and merely enriches the stockbroking and market-making community. Shares do suffer bouts of depression from which they eventually recover.

yourmoney@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions