Derek Pain: Essenden back and I'm hoping for same result

No Pain, No Gain

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The Independent Online

I have, as indicated last week, enlisted another addition to the no pain, no gain portfolio. Little-known Essenden, the latest recruit, has the added distinction of being offered the chance of a repeat performance. It has been in the wars during recent years, but is now showing signs that it has at last got its act together.

Once known as Allied Leisure and running bars, fast-food restaurants and tenpin bowling alleys, it was the subject of a controversial takeover bid and then, as Georgica, concentrated on tenpin bowling and snooker centres. It was as the Georgica incarnation that it joined the portfolio in 2005. The shares were sold, at a handsome profit, when the group started talking about splitting into two.

Essenden took on the tenpin bowling operation. I had already sold because a demerger of any sort complicates the portfolio’s structure. Each investment, for simplicity’s sake, is confined to a £5,000 outlay. To retain that level would entail topping up two shareholdings, which could be an unrewarding exercise. Far better, I feel, to sell at a profit. However, my sale was unnecessary as the snooker business was sold for £34.9m with Essenden, now with 33 tenpin centres, soldiering on as a quoted company.

Still, dumping the shares turned out to be the right decision. Tenpin bowling (and the snooker side) failed to thrive after going their separate ways. It could be argued that Essenden’s shares were the equivalent of some 800p some years ago. Nowadays they are 24p after falling into the penny-dreadful category.

Although the price has slumped, calculating the extent of the fall is not straightforward. Not only is the tenpin/snooker split a major influence, but Essenden has gone down the route of dividing its shareholders’ interests into equity and loan notes. The notes, all 21.4 million of them, are traded on the fringe ISDX (formerly Plus) market at around 31.5p. They once approached their par value of 100p.

The group’s revival stems from the appearance as chief executive of Nick Basing. He joined in 2009 and set about reorganising the business. Slowly the seemingly perennial dark days were replaced by growing optimism. In its last full year a pretax profit was achieved, only to be annihilated by tax charges. In the first half of the current year a £780,000 pre-tax profit, with £535,000 left after the Exchequer take, was booked. Mr Basing, who formerly ran upmarket restaurant chains, unloaded some properties and reshaped and improved the remaining sites.

Leisure is a tough, hard business, particularly in these cash-conscious days. But he is confident. While acknowledging the difficulties ahead, Mr Basing says: “This is now a fit and healthy company.”

Essenden has some significant shareholders. Biggest, with 29.9 per cent, is North Atlantic Value, hailing from the Christopher Mills investment stable; Trefick, the Isle of Man active investment fund, where the veteran businessman Jack Petchey is the major influence, has 19.4 per cent, and old-established Schroder’s sits on a 14.7 per cent stake.

Shares of last week’s recruit, Findel, enjoyed a rousing time, moving from 7.1p a share when I penned my comments to 9p before publication. I’m sorry readers were unable to buy at the same level as the portfolio but the shares (as I write they are a little below 9p) remain, in my view, a buy.

Finally, Mears. The support services group has issued an upbeat trading statement and cemented its role as the major social-housing maintenance group by buying, for £24m, a smaller rival, Morrison Facilities Services. Stockbroker N+1 Singer is impressed by the deal, suggesting that the Mears management will quickly improve the lot of loss-making Morrison. The broker has lifted its target price from 345p to 390p. Should the shares hit Singer’s 390p – they are around 309p – it would represent a new peak. Since the company floated on the stock market in the 1990s at 10p, the best level is 385p. The portfolio has already enjoyed one Mears windfall – buying at 23p and selling at 84p.

It returned to the stock, investing at 272p in 2008. So another successful run would be welcome. Of course, the same sentiment applies to Essenden, my other second-time-around constituent.

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