Derek Pain: I'm taking the plunge by recruiting Alkane and mauled Lloyds
No Pain, No Gain
Friday 30 August 2013
The stock market has lost some of its exuberance. At one time, it seemed likely that it would cement the early form achieved in the first part of the year with a 2013 challenge to its all-time peak. However, with the recent in-and-out displays, such hopes have receded.
The Footsie hit its record high as the internet frenzy at the turn of the century sent any share with a hint of online ability soaring into the stratosphere. As the old century drew to a close, the benchmark index hit 6,950 points, before ending the day at 6,930. With the index achieving 6,845 in May, there seemed every chance the buoyancy that had driven blue-chip shares more than 1,000 points in less than a year would continue to influence sentiment and produce a record.
However, shares are now so uncertain that any investor wishing to alight on new stocks can face some difficult decisions. The no pain, no gain portfolio is in that very same boat. After kicking out two underperformers, there was a temptation to rush into producing some new recruits. But the volatile stock market atmosphere, together with my belief that many shares are probably near to being fully valued, have created selection problems.
Still, nothing ventured, nothing gained. I have descended on a couple of widely contrasting shares that will return the portfolio to its 14-strong contingent. I have my eye on one other stock that could be enlisted in the next few weeks or so.
An AIM share and a rather mauled but recovering blue-chip have caught my eye. One is called Alkane Energy, which is on the junior market; the other constituent will no doubt surprise many readers; it's Lloyds Banking Group.
I usually shy away from recruiting a share where the price has doubled in a year and is around its peak. But Alkane, where prospects are encouraging, seems worth the risk. At 40.75p the group, a successful niche player in the energy business, is capitalised at £50m.
It produced an encouraging trading update in May and I expect the half-time figures, due next month, will underline progress. The May statement said 89 per cent of the year's output was already under contract. Just ahead of the comments the company acquired some assets of the doomed Maltby colliery, once the pride and joy of former portfolio constituent, Hargreaves Services. Alkane has an intriguing role in the power game. It captures methane gas from abandoned coal mines, and there are plenty of them, then converts it into electricity. The resultant product is sold to the National Grid. The company also has shale gas licences.
With Britain's anticipated energy crisis, Alkane seems to be sitting pretty. Recently the industry regulator warned of possible troubles. It could be the country will suffer blackouts as it did during the 1970s coal-mining strike. The last set of figures, at the pre-tax level, were a peak £2.3m against £1.7m. It has a record of eight years' growth and with electricity prices likely to increase and with the shale potential, Alkane, now paying dividends, seems in an enviable position.
Lloyds has made headway in the past year or so and with the ballyhoo which will surround the sale of the government's stake, there seems every reason to believe progress is on the cards. In addition the bank, which has suffered embarrassment since former Prime Minister Gordon Brown encouraged it to rescue Halifax/Bank of Scotland, has indicated that dividend payments may not be too far off. The flotation this year of 630 branches will remove another uncertainty.
I am not anticipating the shares, now 74.8p, will return any time soon to around the 600p achieved before the financial crisis erupted. But they have made remarkable progress since those dark days when the problems at HBoS became apparent. The shares are near a year's high and seem immune from the continuous (and often deserved) banker bashing.
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