Derek Pain: 'Grocers are toiling but Booker just cash and carries on serenely'

The group has succeeded in turning round the loss-making Makro

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The Independent Online

Booker, the cash-and-carry chain and star of the No Pain, No Gain portfolio, continues to exude calm and confidence in what remains an under-pressure retail sector.

The supermarkets, once carrying all before them, are now struggling to combat the discount invaders. But Booker, supplying mostly small traders through its warehouses and delivery services, seems set to sail serenely on.

True, first-quarter sales progress failed to achieve the heady heights of a year ago but chief executive Charles Wilson describes the more modest gain of 0.2 per cent (or 0.4 per cent on a like-for-like basis) as "solid".

The group has succeeded in turning round the loss-making Makro cash-and-carry chain acquired three years ago for around £140m. Now it plans to direct its attention towards another lossmaker, as represented by its proposed deal to buy the grocery chains Budgens and Londis. If this goes through – and there seems every reason to believe the competition authorities will clear it – the cost will be £40m cash.

There are hopes the acquisition will complete later this year, and the addition of 167 Budgens supermarkets and more than 1,600 Londis stores, mainly corner shops, should enhance Booker's performance.

The shop chains should sit comfortably with Booker's existing Premier convenience business and its still- fledgling Family Shopper discounters. There must also be huge scope for its distribution fleets to increase their operations.

The shares, as I write, are around 168p. With a deserved fancy rating, they are not cheap and it would be difficult to argue with stockbroker Shore Capital's view they are fully valued. Still, with increasing profits and dividends and the promise of another 3.5p-a-share special payment next year – making three on the trot – any investor who followed the portfolio into Booker should stick with the group. I am.

Two other portfolio stocks have been in action. Avation, the aircraft leasing group, is supplying the fifth ATR 72-600 aircraft to Flybe, the regional airline. It will be delivered later this year and represents the last of Avation's 2015 ordered planes. The shares are 148p.

Interserve, the construction and support services group recruited this year, reported trading in line with its own expectations, with its various activities offsetting "challenging" construction conditions on the home front. The shares are 646p.

Finally Mears, the longest-serving constituent. I am distressed by its seemingly continuous retreat. The stock market, I appreciate, has not been a bundle of fun in recent times but the decline from more than 540p to, at one time, 405p is extremely worrying.

The group has in the past served me well and I am reluctant to dump the shares. After all, Mears, in the portfolio's early days, was an outstanding success, and upon its re-recruitment at 272p it has performed relatively well. But it faces problems in its social housing and home-care operations and its latest takeover could in the short term threaten its returns on the domiciliary front.

Last month I expressed my concern about the share performance. Nothing has occurred since then to mitigate my displeasure – and to preserve some of the gains second time around, I may be forced to sell if the shares fail to perk up.

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