Derek Pain: I'm betting on Booker to carry on beating the gloom
No Pain, No Gain
Saturday 09 April 2011
The retail community may be feeling the pinch but Booker, the cash-and-carry chain, appears to be surviving in some style. Sales in the year just ended totalled £3.6bn, a 6.2 per cent advance, with the like-for-like figure 5.1 per cent higher. And the cash pile has grown significantly, from £7m to £27m.
Not surprisingly the stock market is wondering whether the reborn group can maintain its heady progress. Many of its customers – mainly convenience shops, pubs and restaurants – must be feeling the impact of the cold financial winds ripping through most sections of the nation. But Booker continues to capture new shoppers, is widening its appeal and has yet to reap the full benefits of last year's two acquisitions; a hotel food supplier and a drinks wholesaler.
Significantly, in the final 12 weeks of its year, total sales rose 6.4 per cent. I would be astonished if the group manages to completely ignore the gloomy economic climate but, because of its trading pattern, I feel it is in a better position to continue to prosper than many others. Stockbroker Investec expects the year's profits, due next month, to hit £66.7m against £56m last time. This year's estimate is £72.4m.
Booker was recruited to the No Pain, No Gain portfolio at 24.5p in January 2009. As I write the shares are 61p, hovering around their highest since the group returned to the stock market four years ago when it reversed into a wholesaling business called Blueheath. Capitalisation is about £934m. My present intention is to hang on to the shares, despite the deteriorating retail outlook. It would require a significant setback to force a change of mind.
Lighthouse, a much smaller company, is another constituent to report on its trading performance. As seems customary these days the accountancy group produces a selection of profit figures with underlying profits coming out at £1.3m against £1.1m and "true" pre-tax profits emerging at £129,000, up from £93,000.
The group faces challenges but at 9p the shares look undervalued. Capitalisation is around £3.9m; yet there is £11m (up from £9m) resting in its bank account. True, more than half of this hoard has to be held for regulatory purposes but even so it looks to be exceedingly well endowed. It is spraying a little of its cash pile among shareholders, increasing the dividend by 20 per cent to 0.36p a share. The portfolio paid 17.5p in August 2006. Subsequently the price roared ahead to 35p but it has been downhill since and although I regard the shares as cheap I am beginning to wonder whether, in view of the stock market's continued indifference, the portfolio should accept its loss and bail out.
Rivington Street Holdings, a more recent constituent, continues its hectic expansion programme. Last year it moved to embrace gold and silver operations. Hameldon Resources became Athol Gold, and Directex Realisations was reborn as Woodbourne Square, a silver group. Now a soft commodities satellite, Agneash, is due; it is at the moment a Plus-traded investment shell called High Road Capital that, after a cash raising, has £900,000 in the bank.
Tom Winnifrith, who is chief executive of Rivington, has already assumed investment roles at Athol and Woodbourne and will take on a similar position at Agneash. The latest deal follows the pattern of the two earlier ones with Rivington taking a significant stake and its fees related solely to performance.
Rivington, which moved its residence to the Isle of Man last year, seems keen to emphasise the Manx connection – its office is on Athol Street and Mr Winnifrith's home is at Woodbourne Square, both in Douglas, and Agneash is a nearby village.
The growing Rivington corporate side has recently arranged a £750,000 loan note placing for a client, Viridas, a brave little business growing bio energy crops in Brazil. At one time it was called Caldwell and sold men's underwear and such items as canopies. Under the direction of chairman Stanley Wootliff, a City veteran, it switched into biofuels four years ago.
Now, it looks as if Viridas will change its spots again. New directors are promised and perhaps less exotic natural resources will be encompassed. The shares (Rivington does not have an interest) are around 1.5p, capitalising the company at just £360,000.
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