Derek Pain: High-flying Mears was burnt by the sun after a U-turn

Mears, once a high-flying stock unburdened by niggling investment worries, has suffered some cruel humiliation in recent times. Two months ago it experienced the indignity of a profits warning, sending its shares tumbling to their lowest level for more than three years.

The surprise trading alert came in a year when the company endured a stock-market bear raid following worries about its treatment of pension cash and a feeling in some quarters that government cuts could have a dramatic impact on its operations. So it is not surprising that its shares, which started last year at around 325p, were bumping along much nearer 200p towards the end of 2011. In the halcyon days when Mears could do no wrong they touched 385p.

It was in the early days of the no pain, no gain portfolio that I first descended on the support services group. It had floated at 10p a share and the portfolio arrived at 23p. Subsequently a handsome profit was booked but four years ago I ventured back into the stock at 272p. Not a wise, or profitable, decision, it transpired. With, as I write, the shares hovering near 235p the question must arise whether the group, specialising in social housing and homecare, should again surrender its portfolio membership. For the time being I will stay put but recent misfortunes have obviously set alarm bells ringing.

The profits warning, one of the 88 rolled out by companies in the final quarter of 2011, was a mild one. But coming on top of earlier anxieties it sent the shares crashing from around 260p to 210p.

Like so many Mears was wrong footed by the Government's U-turn on solar subsidies. Its consequential decision to retreat from the solar business will remove £2.8m from operating profits and create a £2m write-off. A January trading update was quite positive but failed to generate much enthusiasm. The order book now stands at £2.8bn (compared with £2.7bn at the time of the profit warning) with social housing and homecare winning new contracts.

Chief executive David Miles says that by value 44 per cent of housing and 69 per cent of domiciliary bids made by the group in the past nine months were successful.

Mears will announce year's results in March. Following the profits warning a figure in the region of £30m is the City expectation. Still, in the year ahead Mears needs to pull something out of the bag to reinvigorate the share price and, perhaps, even recapture past glories.

Another portfolio constituent, G4S, has received analytical City support. The security group, that made such a hash of a £5.2bn takeover bid for rival, ISS, has won approval from JPMorgan which has lifted its target price from 300p to 320p. Morgan, it seems, sees G4S experiencing uplifting trading in this country as well as emerging markets and in the US which should counter any negatives.

The group's shares are around 270p, having more or less recovered from the ambitious strike at ISS that had to be aborted following fierce City opposition. Although the group spent some £50m on the failed expansion the only long-term casualty seems to be G4S chairman, Alf Duch-Pedersen, who has decided to step down when a successor is found.

The present G4S share price justifies the portfolio's decision to hang on, despite the sharp fall to 220p, following the ill-fated ISS excursion. It is another example of the wisdom of ignoring stock-market shenanigans that are created by short-term hysteria.

There has also been intriguing activity at constituent Avation, the aircraft leasing group. It has acquired around 11 per cent of Capital Lease, an AIM-traded company in the same line of business that it already controlled, and now has a little over 62 per cent. The shares came from an investment group called Oceanwood. It had been accumulating Capital shares for some time. In exchange Oceanwood has taken on board more than 1.6 million Avation shares, lifting its stake to 11.35 per cent.

I suppose Oceanwood is happier sitting on a large stake in a fully listed company, rather than an AIM group but the transaction does prompt the question why Avation should lift its interest in a company it already controlled.

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