Derek Pain: Luck has a way of affecting your fortune
No Pain, No Gain
Friday 14 December 2012
Three weeks ago I suggested that more than the occasional shot of good fortune was essential for any investor. A few days later a recently departed constituent of the no pain, no gain portfolio underlined just how important a luck can be.
Earlier this year the shares of Hargreaves Services, a coal-to-transport group, were riding above 1,200p and stockbroker analysts talked excitedly about the price reaching 1,500p. I was busily congratulating myself for selecting such an outstanding stock. Then troubles emerged at the group's Maltby coalmine in South Yorkshire and the shares collapsed. They crashed to around the 750p mark and I decided that if they actually hit 700p I would wave farewell to what had become the longest-serving member of the portfolio. The 700p level duly arrived and the shares were dumped, allowing the portfolio to book a 283p a share gain.
But Hargreaves has since suffered another setback. Not this time in Yorkshire, but in Belgium. A "serious overstatement" of stocks and credit notes was identified at a subsidiary just after my you-need-luck comments. Consequently the shares, which had recovered to around 780p, slumped and, as I write, are 617p.
I still think Hargreaves has considerable potential, but two unsettling upsets in quick succession will prompt a negative stock market response for some time.
With, luckily, only suffering one of the two Hargreaves hits, the portfolio made reasonable progress in its last quarter. Helped along by a firmer stock market in recent weeks, overall profits have topped £100,000 compared with £93,500 at the September calculation. The portfolio is, however, not even within hailing distance of its peak performance – profits of nearly £150,000 which were achieved before the banking crisis overwhelmed the nation.
Booker, the cash and carry group, remains the outstanding constituent, although the Whitehall probe into its proposed acquisition of rival Makro seems to have drained some enthusiasm.
The other runaway success, Whitbread, has made further headway and Spirit Pub Co. is edging up and is around its all-time peak.
The laggards, notably SnackTime, a vending machine group, and TEG, a green technology business, continue to give cause for concern. SnackTime has now fallen too far for a realistic sale. With the portfolio's investment reduced to some £500 there seems little point in getting out. So it's a case of hanging around, hoping efforts to return the group to its former glory – the shares once approached 200p – will be successful. TEG remains a play on the rewards from green-waste disposal.
Northern Petroleum is also a disappointment. The shares have slumped to 51p as the latest drilling off the South American coast produced a dry result.
Animalcare, a veterinary products group, is also below the buying price. Researcher Edison estimates the current year's profits will emerge at £2.8m with £3.2m likely next year. It says that the group is evolving as "an effective developer" of niche animal treatments. Edison adds: "The risks – financial and developmental – associated with novel drug formulation are higher but the returns are more than commensurately larger too".
Brewer Marston's is going well. After a record-breaking performance – profits of £87.8m – stockbroker Numis remains bullish, forecasting an out-turn of £96.5m for the current year and a dividend increase. With its growing chain of pub/restaurants and new-style pub franchise agreements, the group has established what appears to be a successful formula.
Another old stager back in form is the Mears support services group. Although a relatively minor deal, its £24m acquisition of a much-smaller rival, Morrison Facilities Services, has been well received. It certainly underlines the group's strength in the social-housing sector, pushing the shares near a two-year high.
And Mears has another powerful string to its bow – a growing home-care business.
The two latest recruits – Findel and Essenden – have made interesting contributions, particularly Essenden, a tenpin bowling group.
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