Derek Pain: Greene King is in good Spirit - but I will be cashing out


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The Independent Online

The No Pain, No Gain portfolio will almost certainly sell Spirit Pub Co shares in the next few weeks. The takeover by brewer Greene King now appears a done deal, with C&C, the Dublin-based Magners cider group, surrendering any possibility of rolling out a rival offer. As I write, no other bidder has materialised and I doubt if one will at this late stage.

It was in August 2011 that the portfolio descended on Spirit. The company had just been split from struggling Punch Taverns. The idea was to separate the larger, mostly managed, pubs from the run-of-the-mill boozers often occupied by tenants.

Whether the demerger was a good move for Punch is open to question. It certainly sent Spirit on the path to becoming one of the leading players in the pub/restaurant business. Its management, under the direction of Mike Tye, played its cards superbly well, renovating most outlets and developing brands.

Greene King's offer will add around 1,200 pubs to its already extensive estate. Spirit's brands include Chef & Brewer, a chain that is reputed to be the oldest in the land, having been created in 1901 by a long forgotten pub company called Levy & Franks.

I have said several times that I do not intend to accept Greene King shares. I have nothing against the Abbot Ale brewer but its terms are, in effect, partly in cash. As the portfolio invests £5,000 in each constituent, my acceptance would destroy the enshrined restriction.

There is an added complication. The portfolio ignores dividends and the cash element is represented by Spirit dividends. Hence, an early sale before the bid goes through is advisable.

The portfolio paid 42p for its Spirit shares. It will, on present form, receive above 100p a share, representing a handsome profit.

Additions to the portfolio are essential. Spirit's departure will leave only 11 constituents. Of the four possible newcomers I listed in last year's final column, I am veering towards Utilitywise, the energy cost-management group, as the most likely portfolio candidate.

Patisserie shares have leapt from the 218p price they were at when I commented on them. As for the other two, the drinks group Distil, despite poor figures, and Peel Hotels remain in my sights.

Utilitywise has much going for it, although the Labour Party's energy plans may reduce the group's attractiveness. Still, the shares could still turn up trumps.

With last year's revenue up 93 per cent to £48.6m, profits topped £13m and something around £17.5m is likely in the current year. The group exudes confidence, manifesting itself in a 54 per cent dividend increase.

The shares hit a 371p peak last year, a valuation representing a staggering advance from the 60p issue price when it floated on AIM in the summer of 2012. At the time of writing, the price is 245p, where a reasonable rating is enjoyed.

There is little doubt Utilitywise was overvalued last year. Consequently, the fall from such a heady height could offer a buying opportunity.

Finally, there is Mears, the support services group that has been something of a disappointment since it issued a rather subdued trading statement. Its shares are 395p (after reaching more than 540p).

Its yearly figures are due in March, but in the meantime the group's home care division has become the preferred bidder for a significant NHS/social care contract in the West Country. The deal should be confirmed this month.

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