Derek Pain: Mears and G4S are sound shares to hang on to in volatile times
No Pain, No Gain
Saturday 03 September 2011
In these stressful times it is encouraging when a share stages an impressive comeback. Even holding its own as many stagger lower displays remarkable resilience. Two constituents of the no pain, no gain portfolio have, to some extent, resisted the market mayhem and produced exciting recoveries.
The "comeback kids" are Mears and the much bigger G4S. Both have been helped by fine trading displays, underlining that investors may be rattled but many companies are still serenely going about their business and doing so in some style. Mears, a support services group covering social housing and home care, was the subject of a fierce bear raid earlier this year, largely prompted by its treatment of pensions cash. Around the start of the year the shares reached 326p. Then, following the pension disclosure and long before the stock market suffered its intense attack of the jitters, the price slumped well below 240p. But a degree of optimism returned although, as interim figures loomed, the shares were again uncertain. The half-time results steadied the price and, as I write, it is above 270p. Not a bad performance, considering Footsie has fallen more than 300 points since the profits announcement.
The trading statement was certainly positive. Revenue rose 16 per cent and adjusted profits were up 7 per cent at £14.1m with the clear pre-tax figure emerging at £10.9m, against £7m. The dividend was lifted 13 per cent to 2.15p a share. And the accompanying comments were bullish with chief executive David Miles declaring that there are "unprecedented levels of opportunity in the public sector". The order book, he added, stood at £2.7bn and 97 per cent of this year's forecast revenue was already in the bag and so was approaching 85 per cent of next year's.
Shares of G4S were 242p just ahead of its interim results. The figures were not particularly scintillating but the trading statement so impressed the stock market that the price topped 270p, up around 30p, before easing back as profit takers took their inevitable toll. Underlying profits came out at £238m (against £236m) with a clear pre-tax figure up 5 per cent to £149m. Chief executive Nick Buckles set the shares alight by revealing that the group's emerging markets business was growing healthily and there were considerable expansion opportunities via acquisitions.
The world's largest security group, with 625,000 employees, now gets 29 per cent of its revenue from emerging markets – Asia, Middle East, Africa, Latin America and the Caribbean – and aims to increase this contribution to 50 per cent in the next seven years. Its ambitious programme to spend around £200m on bolt-on acquisitions looks like providing some interesting results with Mr Buckles talking about a strong pipeline of opportunities. He is confident about the outlook for this year and "into 2012".
G4S, an Anglo-Danish group that is set to provide security at London's Olympic Games next year, is lifting its half time dividend by 8 per cent to 3.42p a share.
Like Mears, G4S is a sound share to hang on to in these uncertain times. Quite clearly, if the stock market had been behaving itself, the two shares could be much higher and their recovery even more impressive. Some other portfolio constituents, although they have suffered in the meltdown, have performed relatively well. Booker, the cash and carry chain, and Hargreaves Services, the coal to transport group, have given ground but still seem to be sound long-term holds. Leisure group Whitbread has taken something of a hammering. The shares brushed 1,900p early this year but have since been down to about 1,400p. Yet it would, I believe, be unrewarding to be panicked into selling at this fraught time.
Last week's two recruits – Northern Petroleum and the Spirit Pub Co – are little changed from my buying prices. There is, however, an outside chance that Northern's shares could get a boost this month as Tullow Oil is due to announce progress (if any) at its extensive exploration area off the Guyane coast. Northern splits a 2.5 per cent interest in the project with Wessex Exploration, an AIM-traded minnow. Its modest involvement could be worth, say 25p a Northern share, should some of the more bullish expectations be confirmed. Wessex is headed by David Bramhill, ex-Nighthawk Energy boss.
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