Derek Pain: Much to encourage after enduring a shaky final quarter
No Pain, No Gain
Saturday 11 December 2010
The no pain, no gain portfolio suffered two embarrassing relegations in the final quarter of the year but still managed to produce a modest advance.
The demise of English Wines Group and Nighthawk Energy was quite clearly a savage blow. And my two most recent recruits, G4S and Rivington Street, have yet to cover themselves in glory.
Still the likes of Booker, the cash and carry chain, and Whitbread have performed well. Marston's and Hargreaves Services have managed hopeful contributions.
Last week Marston's rolled out profits ahead of expectations. Perhaps, more importantly, its final dividend was unchanged. The year's total will be lower but the so-called "rebasing" is not as severe as I had expected. The brewer and pub owner produced year's pre-tax profits, before exceptional charges, of £73.5m (compared with £70.3m). The figure was £52.5m (£21.4m) after the special influences were stripped out. With its arch rival Greene King reporting a heady profits brew the day following Marston's figures, there is evidence that the integrated groups, owning breweries and pubs, are surviving the drinking downturn better than the heavily indebted tenanted pub companies, such as Enterprise Inns and Punch Taverns. Some managed chains, like Mitchells & Butlers, are also increasing their presence. Capital Pub Co., a possible portfolio constituent, lifted its half-year pre-tax profits by around a third to £1.66m. Hargreaves, with fingers in coal mining, transport and waste disposal, has posted an encouraging trading update It expects interim figures, due in February, to be in line with expectations and adds that it is confident about the full year's results.
My latest recruit, Rivington Street is now the top Plus adviser with 28 client companies and is working on four floatations for the New Year. The group's AIM contingent is now 23 following the arrival of Nexus Management, an IT specialist. Rivington has also engaged in some surprising diversifications, acquiring a pharmaceutical distributor and a developer of temperature stabilisation equipment – largely for deferred payments – and taken an interest in a Canadian limestone quarry. Cashflow seems to be the main influence behind these three fairly modest deals. But it has not all been good. Patsystems has given ground after a surprising profits warning. The group, providing technical assistance at various trading platforms, said its results would now be "broadly in line" with last year's adjusted figure – £3.9m. Hopes of an advance have, apparently, been dashed by a slower flow of orders and an accountancy change. Private & Commercial Finance, the hire purchase group, has continued to give ground although it has forecast little changed interim profits.
My final quarterly update of the year shows progress. I almost managed to reach £100,000 profit, hitting £99,300, some £3,000 ahead of the September return. It is still far from the £150,000 level achieved a few years ago when the stock market was in exuberant form and the portfolio enjoyed a host of high flyers.
My search for recruits goes on. I intend to stick to UK-based companies and will not join the flight to so-called emerging markets. Anyone contemplating such action should be aware of the dangers. Besides currency complications, such as converting dividends (if any) into sterling, there can still, even in this hi-tech global age, be problems relating to being so far removed from an investment. Investors seeking emerging exposure should trust their luck to one of the many funds that ply their knowhow of overseas activities. I am, I confess, not a fund person.
If I am going to lose money I would rather do so off my own bat rather than pay someone for the privilege. Britain may be one of the most mature share markets, but I believe it still has much to offer.
It should not be overlooked that many domestic companies have extensive interests in emerging countries and offer one of the more responsible ways to capture some of the excitement that has led to the current feeding frenzy.
Perhaps it is also worth remembering that in the fast moving world of investment trends quickly change. I hate to think just how many seemingly irresistible fashions have ended up on the scrap heap with small investors, often the last to get the message, counting their losses.
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