Derek Pain: Small fry must have a stab at Green growth
No Pain, No Gain
Friday 18 January 2013
The absurdity of tiny shareholdings is illustrated this week by Green Compliance, a former constituent of the no-pain, no-gain portfolio. The shares were ditched a few years ago with the portfolio retrieving just £200 of the original £5,000 investment.
Since then the stock has continued to sink. The portfolio got involved in the company, then called Wyatt, in 2003. It paid 27.5p a share. Consolidations and share issues, plus poor trading, have over the years helped devastate the price. At one time it probably approached the equivalent of 1,000p and five years ago could be regarded as comfortably above 400p. As I write the shares are 3.25p, a slight improvement over recent levels. The group, now involved in fire, pest and water compliance, is raising more money (£2.1m at 2p a share) through an open offer to shareholders (seven new shares for every 10 held) as well as a private placing.
As readers know I often invest modest amounts in portfolio stocks as I believe a stake underlines my conviction that a share is worth buying. I held on to my declining Green shares following the portfolio's departure. So the catastrophic fall has devastated my shareholding, which could still be useful for soaking up some capital gains tax. Now, as the company is obliged under listing rules, I have been invited, despite my almost non-existent interest, to take part in the open offer side of the cash-raising exercise. I am, it seems, entitled to just 21 new shares that will cost me all of 42p. Of course, I have the opportunity of building my interest by applying for extra shares. But I have in the past already engaged in such an exercise.
In October I commented on small shareholders being left with tiny shareholdings through no fault of their own. Takeover bids, share issues and consolidations have created what often amounts to interests that cost money to unload. A company, of course, should treat all shareholders equally; hence my 42p invitation. The nonsense of such a situation is underlined by postage costs – much more than 42p.
I have come across situations where small shareholdings have been deliberately obliterated in capital reorganisations. Such moves are harsh and I do not support them. A company comes to the stock market for better or worse and should, as Green has commendably done at some cost, offer us small fry the chance of taking up our entitlements. Another solution could be companies buying in tiny stakes. It is, I believe, essential that the City shows that democracy is alive and well.
The portfolio, of course, is no longer interested in Green. But it and yours faithfully are still licking our wounds. I am undecided whether to take up my entitlement and go for extra shares. Clearly investing more cash in what has been a disastrously costly exercise requires a strong stomach, or a stupid refusal to acknowledge past mistakes.
Yet Green does not appear to be a lost situation. Debts are high but then the group has forged a new compliance business, having put through 16 acquisitions in three years. It is loss making and feeling the economic pinch to some extent. Bob Holt, chairman and creator of the successful Mears support services group, has displayed an almost evangelical desire to see Green succeed. He was in charge when the portfolio arrived. Now he is again taking over executive responsibilities while remaining chairman. And it is interesting to note that among those backing the cash raising are experienced City powers, Cazenove Capital Management and the Legal & General insurance giant.
Two current portfolio constituents, TEG and Animalcare, have been in action, offering trading updates ahead of results. TEG, the organic waste group, indicates trading "improved substantially" in the second half year and is looking positively on the current year. The group finished 2013 in a "strong cash position". Animalcare is also upbeat. Trading over a six-month period has been strong with revenues up 13 per cent.
The shares of both companies are below the portfolio's buying price. But it would appear that after some difficult times the two groups could be on the up road. I nurse hopes that they will eventually join the profitable contingent.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
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