Derek Pain: It's the colour of money as pair swap red for black

No Pain, No Gain

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The Independent Online

It is always pleasing when loss- making shares edge into profit.

Two constituents of the "No Pain, No Gain" portfolio have recently exchanged red for black and I nurse fond hopes they will enjoy a plus sign in my next quarterly valuation.

The revivalists are Animalcare and Essenden. Their progress means the portfolio is still lumbered with two long-term casualties, while the August recruits, the energy company Alkane and Lloyds Banking Group, have slipped marginally. Alkane's decline is a predictable result of Ed Miliband's threat to freeze energy prices.

Animalcare, a veterinary products supplier, was recruited two years ago at 171p. I got my timing wrong – the shares have since been down to 120p – but they have just managed to get into profit. As I write, the price hovers around 181p – a pretty poor return over two years.

While stockbroker Panmure Gordon has a 245p target price, and the group did well in the 12 months to June, it is difficult to see any short-term improvement. Underlying profits emerged at £2.7m but Panmure forecasts little change this year, with the figure down to £2.4m in the following year. Heavy investment in new products is largely to blame for the broker's caution.

Long-term prospects are, however, bright, and there is every chance Animalcare will reap rich rewards in the years ahead. Whether I am prepared to stick around for any eventual bonanza is something I will have to think about. Certainly the performance in the last year offered some encouragement, with revenue advancing 11.6 per cent and "true" pre-tax profits staging a modest recovery to £2.3m. The year's dividend is up 17.8 per cent to 5.3p a share, and the group is happy with the trading start to the current year.

Essenden, the tenpin bowling group, lifted sales by 0.7 per cent in its first six months, with pre-tax profits up 66 per cent to £1.3m. There is £1.4m in the bank against a £700,000 overdraft last time.

Chief executive Nick Basing said: "Despite choppy waters, we have managed to hold our course. All measures are pointing the right way".

The shares, fearful of the impact of the recent hot spell, which was not conducive to indoor leisure activities, declined to 21p, against my 24p buying price. They are now 25.5p, against a peak for the year of 32p. Corporate activity is a possibility, with what is called a "transformational" deal still being sought.

My long-term casualties are SnackTime, which I discussed last week, and TEG, handling waste and producing power. TEG's interim profits indicate further progress, with the pre-tax loss improving from £1.8m to £806,000 on revenue of £12.9m. But the group is still having to contend with delays in the release of cash relating to three sites in Manchester. In the meantime it has raised £2.6m in 18-month loan notes from two shareholders and the family of chairman Rory Maw.

The portfolio descended on TEG two years ago at 8p a throw. Once upon a time, the shares were around 150p; since then they have deteriorated to near 3p but now stand at about 5.5p.

Judging from the interim statement, the sort of performance I once assumed was just around the corner is not likely to materialise this year.

It is possible to escape with an almost acceptable loss at this juncture but I intend to hang on. I feel the shares will eventually produce a worthwhile return. Patience, as is so often the case, is again required.

TEG, as well as Alkane, could feel some impact should any Labour Party freeze on energy prices actually materialise.

The portfolio is not a short-term investor, although any shareholder should always try to anticipate events, and I think it is too early to start worrying about an energy clampdown that may never happen.

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