Derek Pain: Hero-to-zero RSH may have done too much, too soon

No Pain, No Gain

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The Independent Online

The catalogue of woe that has enveloped Rivington Street Holdings has, not surprisingly, had a devastating impact on the Plus-traded shares of the financial and software mini-conglomerate. In a near hero-to-zero performance the price has slumped from more than 50p to a mere 4p with one unhappy investor so anxious to get out that he sold 19,310 shares at just 2p each.

The no-pain, no-gain portfolio paid 27.5p a share for its holding. I congratulated myself as the shares nearly doubled but once again held on for too long as the stock declined, eventually unloading at 13p. At one time the group enjoyed a capitalisation of around £20m. Today its value is put at £1.8m.

What has gone so badly wrong? It is impossible for an outsider to appreciate the deepest ins and outs of a company. But it would seem that RSH grew too quickly through acquisitions and expensive start-ups and had to change its accounting policies to accommodate its ambition to move from Plus. In addition the still-to-be completed sale of its successful and highly rated corporate finance division seemed to question its clarity of purpose.

RSH is largely the creation of ex-City hack Tom Winnifrith. It started around the turn of the century with an internet share-tipping site and expanded into various other financial websites, as well as fund management, public relations, software activities and stockbroking. An interest was even acquired in a Newfoundland quarry. Mr Winnifrith, with around a 28 per cent stake, was, in effect, sidelined last year. He has now left the board although he has agreed a two-year contract that keeps him with the group. He complained bitterly about the demands of International Financial Reporting Standards, an accounting system RSH had to adopt for its intended move to AIM. He said at the time: "IFRS is cruel in that you must write down the carrying value of assets where you think a writedown may be prudent but cannot write up any values."

The net result was that a £2.7m impairment charge wiped out profits and left the group nursing a £260,000 loss last year. The company is also committed to deferred payments relating to acquisitions and felt obliged to raise £1m through a placing at 25p. It has since accepted a £750,000 loan from chairman Jim Mellon, an experienced businessman. Subsequent interim results to end-February revealed a £3.4m loss against a £954,000 profit. The group has already unloaded some of its operations and Mr Mellon says the changes put RSH "in better shape to return to a growth path in due course".

The departed Winnifrith, writing on, the website that started the group and is still part of it, told shareholders he shared their pain. "I apologise to those who have lost money backing RSH for mistakes I made; I cannot apologise for mistakes others made which it would be wrong for me to discuss."

From a former constituent to three current players: Booker, Animalcare and Hargreaves Services. The cash-and-carry chain continues to power ahead, producing year's pre-tax profits up 27 per cent at £90.8m with revenue 9.5 per cent higher at £3.9bn. The year's dividend is up from 1.67p to 2.28p a share. The group remains the star of the portfolio.

The two other constituents have let the side down. Hargreaves' shares, hitherto riding high, crashed when problems at its Maltby Colliery in Yorkshire were revealed. They will hit current year's profits by up to £16m although figures for the year just ended should escape.

And Animalcare, the veterinary group, issued a profit warning as identification microchip sales took a caning. Space prevents a detailed examination of these setbacks. Indeed coming after the Rivington escapade the portfolio has taken quite a bashing this year.

I will deal more fully with the portfolio's latest casualties next week. My intention is not to be panicked into any rash decisions. I am also keen to bolster the strength of my little share exercise with additions. After all the stock market, as the euro crisis drags on, has fallen from what I regarded as an unrealistically high level. It is often the time to buy when shares look a little depressed.

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