Derek Pain: Findel's for me - its fortunes are set to recover
No Pain, No Gain
Friday 16 November 2012
It's time to reinforce the no pain, no gain portfolio. I am torn between enlisting a couple of blue chips or opting for small caps that – hopefully – are on the recovery route.
Recruiting leading shares has served my little share exercise quite well over the years, although the current two Footsie constituents are producing mixed performances. Whitbread has covered itself in glory with the shares more than doubling, but G4S's Olympic-related problems continues to undermine the stock.
I am far from convinced another Whitbread is available; so I have decided to go for a couple of minor players. Both shares carry an element of risk, but they could be richly rewarding if resurrection endeavours continue to succeed.
Findel is one of my selections. A mini-conglomerate, it is, as small caps go, quite a heavyweight, capitalised at £122m. The shares, around 7p, up from 3.5p this year, are still stuck in the penny-dreadful category. Not so many years ago they were priced at the equivalent of 600p or so, but since those heady days Findel has run into problems and suffered significant losses.
However, it looks as though remedial action is working, with rights issues, share placings, restructured debts and disposals helping the group to recover.
Indeed, the shedding of another operation could be imminent. The group has admitted that talks are on for the sale of its NRS healthcare business. The figure being bandied about is in the region of £28m. Perhaps confirmation will appear later this month with interim results that are expected to underline the trading improvement. A recent update was quite encouraging. The last, full- year's figures showed a pre-tax profit, wiped out by a series of special charges. The stockbroker Oriel Securities believes current year's profits will be £15m with the following year producing around £21m.
Besides healthcare, the other main activities are educational products and home shopping (Express Gifts and Kleeneze). In the half-year update, all divisions were going well with the exception of Kleeneze, where results were below expectations. Findel started stock-market life 50 years ago as Fine Art Developments, mainly involved in greeting cards. It enjoyed a pretty handsome record until running into grief.
My other recruit? I will keep it under wraps until next week as I feel obliged to mention three existing constituents, including Whitbread and G4S mentioned earlier. Suffice to say my target has already enjoyed a successful portfolio run.
The trio has experienced various forms of action recently. Booker, the cash and carry chain, has encountered regulatory problems. Its £140m takeover of rival Makro has been put on hold as the Office of Fair Trading has referred the deal to the Competition Commission. Such a decision was not unexpected, although it seems to me that blind bureaucracy has overcome common sense. Makro is heavily loss-making and clearly in need of a helping hand. The commission's decision will not be known before April.
Booker is the portfolio's star performer. The Whitehall intervention drained a little enthusiasm from the shares which hover, as I write, around 100p. I have had a rethink about my sell price. A few weeks ago I said that should the shares fall to 90p, the portfolio would automatically sell. I have decided to reduce that figure to 80p. I don't expect the shares to slump to such a level, but the present investment environment calls for caution.
Another constituent making news is the aforementioned G4S security group. Its Olympic fiasco has, some believe, returned to haunt it. There was always the danger of reputational damage after the group's inability to provide enough security guards. To some, the Government's refusal to extend G4S's contract to run a prison is evidence that it is going to find more Whitehall deals under severe scrutiny. Yet there are indications that the Government's decision was not related to the Olympics.
It is, therefore, just possible that the prison lock out is not a manifestation of any anti-G4S attitude from officialdom. Even so, the shares are below the portfolio's 264p buying price.
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