Derek Pain: Lean return on promising Green CO2 merger

No Pain, No Gain

Green CO2 joined the no pain, no gain portfolio more by accident than design. In 2003 I alighted on what I thought was a promising online group called Wyatt. How wrong can you be? It turned out to be one of the high- tech players that did not make it. Unrewarding deals eroded the shares. They slumped to 2p from my 27.5p buying price.

Another example, I'm afraid, of hanging on, hoping for the best. Mind you, it was not all downhill. At one time Wyatt seemed about to clinch an intriguing takeover and its shares appeared set to record a profit for the portfolio. But no. The deal fell through and, despite some vigorous endeavours, the decline gathered pace.

Green CO2 came into the picture through a reverse deal achieved earlier this year. It is probably not the type of business in which I would have elected to invest. But once again, with the price so low, there seemed little point in selling. Under portfolio rules, the cash call that accompanied the takeover had to be ignored.

The old Wyatt, which changed its name to Green CO2, went into the merger with a clutch of online operations, some of which were profitable. Its partner is involved in the fledgling business of providing Home Information Packs and energy certificates. The combined group has yet to issue a trading update.

But it has raised more cash. One of those private placings which I detest has produced £287,000. Still this is one exercise I cannot complain about. After all, at the time of the merger the group attempted to raise approaching £900,000 through a placing and open offer to shareholders.

The placing pulled in the expected £517,000 but the offer produced a mere £44,000 with a miserable 12.6 per cent take up. So the latest cash call at 1.25p, the same price as the offer, merely plugged the money gap created by reluctant shareholders.

Bob Holt, Green's chairman, and clients of two stockbrokers, subscribed to the issue.

Holt runs another portfolio constituent, the rather more successful Mears, which is engaged mainly in social housing and domiciliary care and is seemingly in a strong position to resist recessionary damage. Its profit record is encouraging and another strong performance is expected this year. Interim figures are due later this month.

The only drag could be the small mechanical and electrical division that mostly serves the private housing market. Yet, in its April trading update, Mears referred to the division's niche appeal and seemed confident about its prospects. The social housing and home care operations are sheltered by long-term contracts with a range of local authorities and other public bodies.

Care is a relatively new activity. Holt believes it could develop as impressively as social housing as more and more organisations are forced to outsource their requirements in the battle to shave costs.

Mears has been particularly active on the housing front. It recently clinched a £200m, 10-year deal with Brighton and Hove City Council, which lifted this year's total order intake to approaching £400m. In April the group had already accumulated 92 per cent of this year's forecast revenue.

The shares were among the portfolio's early arrivals. They were picked up at 23p and sold at 71.5p. An extended holiday that would coincide with what appeared to be a dodgy stock market prompted me to crystallise the not-insignificant profit. I returned in March last year at 272p. The price is now around 255p.

Finally Nighthawk Energy, a constituent that seems to attract much of my attention these days. Although I was assured last week that there were no short-term funding requirements, the group has since rolled out yet another cash-raising share placing. It has pulled in £22.4m at 35p a share.

So shareholders suffer more dilution. The group arrived on AIM in March 2007, raising £10m at 25p in the process. It has since indulged in two placings at 20p and another at 46p. Its latest exercise lifts its placing cash to £48m.

The money is needed for exploration and development. Nighthawk remains a promising oil play. But is it fair to dilute existing shareholders so much? Surely, with a £22.4m call a rights issue (or placing and open offer) should have been arranged.