Shares in Safestay, the ambitious upmarket hostel operator recruited to the No Pain, No Gain portfolio earlier this year, have returned to the stock market – but at a lower price. They were suspended at 68p while the group contemplated two big acquisitions and put in place plans to raise the necessary cash. One of the takeovers, a proposed hostel in Italy, failed to materialise. But the other, an Edinburgh hostel, is going ahead.
The Italian job, a property in Milan, was abandoned following "feedback received from investors". Could it be that some thought Safestay was taking on more than it could chew?
However, the £14.9m, mostly cash, Edinburgh acquisition – with 615 beds – looks intriguing. Besides aiming at the traditional hostel market, the business has a 12-year contract to provide student accommodation with the University of Edinburgh. Revenue last year was £2.7m, compared with the group's first property, at Elephant and Castle in London, which managed £2.3m.
Not surprisingly, the cash demand has been scaled back. Instead of the £23.5m originally proposed, it now amounts to a £9.34m placing and open offer with an £8.5m debt facility. Shares are being sold at 62p – against a price, as I write, of 57p. The portfolio paid 70.5p. Robert Sanders, an analyst at stockbroker Westhouse, has a 120p target.
Larry Lipman, Safestay's chairman, said trading has been "satisfactory". But he again warned that the build-up of operational support for the expanding business could have an impact on profits.
I promised to drop Stock Spirits from the portfolio if the shares fell below 180p. They touched 171.7p last week after it confirmed that profits had plunged. On an eventful day for the shares, I managed to sell at 193p. But it was small consolation as the portfolio paid 278.75p.
With Essenden's quote cancelled following the takeover by Indoor Bowling Acquisitions, the portfolio's strength has fallen to 11.
The stock market has been behaving in a decidedly groggy fashion. Normally September and October are notoriously poor months for shares, but this year August, when many in the City are on holiday, has emerged as a powerful rival. My belief is that a portfolio needs rather more than 11 constituents to provide the necessary balance. I am seeking recruits and have some in mind.
Essenden, the tenpin bowling chain, recorded a handsome profit; Mears, sold a few weeks ago, was also in the money, but to a much more modest degree.
I do regard the portfolio as a long-term investor. So two quick sales could suggest something of a touch of short-termism. Although Mears' interim profits ticked 3 per cent higher, there were sufficient indications to justify my decision. As I have said, the support services group has been a great servant of the portfolio and could yet return.
Stock Spirits, on the other hand, had a disastrous time. Vodka sales in its main market, Poland, were devastated by a tax increase and fierce competition. The performance of the shares illustrates its problems, with the price dropping from above 300p. It is getting to grips with its Polish problems but faces a long haul before the portfolio could even get its money back. Even a takeover bid is unlikely to be much above the present price. So it is better to cut and run.