Derek Pain: Driving ahead with plan for extended portfolio

No Pain, No Gain
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The Independent Online

The no pain, no gain portfolio is in need of recruits. Two unrelated influences make me anxious to inject fresh blood.

I remain convinced that 16 constituents represents the ideal strength for our modest exercise. Some readers have questioned my devotion to such a number. My reply is that a collection of 16 provides the opportunity for a small portfolio, aimed at buy and hold private investors, to cover an adequate mix of companies, both in terms of occupation and size. I would not complain about some slight deviation either side of 16 but I feel some discipline is necessary when conducting a manageable but broad operation, in effect a mini-unit trust.

My other concern is that current membership rests uneasily at unlucky 13. Even in the tough world of investment it is foolish to unnecessarily tempt fate. Such a sentiment may not be widely shared in these hard nose days but after more than 50 years in the City I feel it wise to try and cover all eventualities, even any regarded as nonsensical.

I already have three candidates for my bid to lift portfolio numbers. They certainly add up to a mixed bag, underlining that even a superstitious old soul is not afraid to indulge in the odd speculation.

Two are traded on the fringe Plus market, which houses many aspiring, unproven and often lightweight groups, The other is a multi-million pound constituent of the blue chip Footsie 100 index.

I mentioned my Plus twosome – Bluehone, a financial group, and NCI Vehicle Rescue – a few weeks ago. To balance such speculative additions I am, not for the first time, thinking of recruiting the Compass contract catering giant.

NCI is my favoured Plus recruit. It has no borrowings, £1m in the bank, pays a dividend and could produce profits of around £650,000 in the year ending March. Yet, at 25.5p a share, it is capitalised at only some £2.5m.

The company runs a road side breakdown service for cars, light vans as well as motor cycles. It also offers insurance services. Growth in recent years has been encouraging. In 2006 turnover was £849,000 leading to a £63,000 loss. Last year on revenue of £3.5m profits hit £165,000. In the first half of the current year sales rose to £2.9m with profits emerging at £340,000.

When NCI arrived in 2004, the fringe market still rejoiced under its original name, Ofex. Since then the shares have fluctuated, falling to around 4p and hitting a peak of 33p a few months ago.

I would not be surprised if NCI attracted a takeover bid in the not too distant future. In the meantime a modest shareholding re-allocation is, I hear, likely to take place involving the 6.9 per cent stake held by a company called Insurance Ventures. The shareholding is to be split between new shareholders although one of them, Mark Watson-Mitchell, is chairman of both NCI and Insurance Ventures, where he has an 18 per cent stake. He is, however, underlining his faith in NCI by buying 100,000 of the shares being sold.

I have decided to enlist NCI at 25.5p. I may well add Bluehone at a later date. The financial group arrived on Plus via a reverse take over of a company called Investments West Midlands. Since the deal went through the shares have more than doubled to 3p.

Bluehone is a fund manager focussed on small caps. It has also a cross shareholding with Evolve, an AIM-traded company that controls stockbroker Astaire. There are also links with small cap investor Elderstreet which has a significant stake in a portfolio constituent, SnackTime.

In its last half year Bluehone suffered a loss. But almost all the £173,000 deficit was due to costs associated with the reverse take over.

The rejuvenated Compass, of course, is an entirely different proposition. The dark days when it seemed beset by difficulties – the shares were less than 200p five years ago – are now but a distant memory. Pre-tax profits last year were up 36.6 per cent.

At 460p the shares are not cheap. But investment house Nomura has a 585p target. There is no rush to buy. With NCI taking the portfolio away from the dreaded 13 level, I am prepared to bide my time.

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