Derek Pain: Raise a glass to Booker's elevation from AIM

No Pain, No Gain
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The Independent Online

Within the next few weeks Booker, the cash-and-carry chain, is due to graduate from AIM, the junior share market, to full listing. Elevation to the top tier follows the melting of its Icelandic connections and the appearance of a quite scintillating set of profits.

The shares were recruited to the no pain, no gain portfolio at 24.5p a year ago. The price is now around 35p, capitalising the group at £521m.

The graduation will mean that three portfolio constituents are fully listed. Mears, the support services group, made the transition last year. Whitbread, embracing budget hotels, coffee shops and pub/restaurants, is a long-standing member of the upper class.

Booker arrived on AIM two years ago when it reversed into a largely internet wholesaler. In an earlier incarnation it was fully quoted. It then became a victim of the Icelandic marauders who, before the island's banking implosion, seemed intent on dominating the UK's retail fraternity.

What appears to be the last lingering link with the Nordic invaders – a 22 per cent shareholding – has been placed, widening Booker's institutional support. The move upmarket should further strengthen the group's institutional involvement as AIM is out of bounds to many City fund managers. Others are just reluctant to get involved in the more risky junior market.

The figures and prospects should endear it to all shareholders, big and small. At the pre-tax level, profits rose 30 per cent to £47.2m and debt was cut 47 per cent to £24.9m. The dividend was also increased. Profits should comfortably exceed £50m in the current year.

When chief executive Charles Wilson, formerly of Marks & Spencer, took charge, Booker was a rather dull cash-and-carry operator, supplying corner shops, many wilting under pressure from giant supermarkets. It seemed that much of its future was already behind it. But Wilson has broadened the group's appeal. The C&C business has been reinvigorated and internet sales have soared. Its customer spread has widened significantly with caterers playing an increasingly important role. And its distribution division is recruiting more shops; even the prison service has become a customer. Pubs, accounting for some 3,000 kegs of beer a week, are also on board.

The first overseas C&C is due to open in Mumbai later this year with many of Booker's customers advocating the Indian excursion.

I am pleased to see that shares of another portfolio constituent, Nighthawk Energy, the oil and gas group, appear to have settled after their crash last week. I repeat that the sale of minority stakes in its Jolly Ranch field was an excellent deal and I regard the shares, around 46p at the time of writing, as cheap. Indeed, last week's assessment report on two other Nighthawk developments prompted stockbroker Daniel Stewart to ponder whether the fields were worth up to 30p a share. With the Jolly deal suggesting a 47p-a-share valuation and a further 5p a share in cash, Nighthawk, on all calculations, must be substantially undervalued.

One inhibiting influence, which must be coming to an end, is selling by institutions – and others – that acquired shares when Nighthawk indulged in what it regarded as essential 20p placings, raising £10m. Such exercises, often at knockdown prices, can store up discomfort for other shareholders, who see their existing investment badly bruised. Once the short termers have finished profit-taking – and I am not criticising them – the price should make headway.

Finally, English Wines Group, the portfolio's only Plus stock. The shares have nudged my 20p buying price following proposals to raise £1.1m selling convertible loan notes, mainly to leading shareholders.

Placings to a privileged few have never been my favourite method of cash-raising. But with this exercise costing a mere £20,000 it would be churlish to protest although, if fully converted, it would increase EWG's capital by 26 per cent at 10p a share.

The cash is needed to buy an increasing supply of grapes – as more vineyards come into production – and extra processing equipment. Improvements will also be carried out to the company's Chapel Down Winery in Kent.

The expected cash infusion had an uplifting influence on the shares, offering another reason not to object. The price climbed from 15p to 20p, before easing to 18p.

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