Derek Pain: SnackTime looks hungry for further growth

No Pain, No Gain

Shares of SnackTime arrived on AIM a few months before the junior market crashed. They have survived the bloodbath reasonably well and now seem set to make headway.

I have been on the trail of the little group, capitalised at around £9m, for some time and could be tempted to recruit the shares to the no pain, no gain portfolio. I will probably decide after I have seen the yearly report and accounts, which should appear early next month.

Last week the group, which supplies drink and snack vending machines to a variety of sites, produced a 64 per cent profits advance to £202,000. Sales surged from £3.8m to £6.7m.

The shares, floated in December 2007, at 144p, jumped from around 100p to 119p following the figures. They have been as low as 70p. With many AIM shares still deep in the mire such a display, although far from exciting, is quite tolerable.

SnackTime has a national spread of vending machines. They are usually situated in relatively small units, such as offices, shops and factories, which are not large enough to support catering facilities. Fire and police stations, as well as hospitals, are also targeted. Machines are loaned free with SnackTime retaining ownership.

The group generates income from the profit margins on the drinks and snacks it sells. Prices are said to be in line with those charged by many retailers, and from "contributions" from its suppliers – Mars, Britvic, PepsiCo (Walkers) and Coca-Cola. The smallest cabinet is only 10 inches deep and, therefore, easily tucked away when space is in short supply.

Its free loan policy is clearly capital intensive. A major factor in the decision to float was the stock market's cash-raising ability. The share sale raised £3m and, around the turn of the year, a further £1m was pulled in by selling shares at 90p and issuing convertible loan notes.

When it was launched in 2001 by marketing men Blair Jenkins, who is now chief executive, and Ian Forde, the commercial director, the group was privately funded. Then Elderstreet Investments, the vehicle of serial entrepreneur Michael Jackson, injected £1m before a further £1.2m was raised with Elderstreet contributing £100,000.

Jackson, a former chief of the Sage computer group, is chairman of SnackTime and has a 1.2 per cent stake. Elderstreet has around 30 per cent. He has a knack of backing small and successful companies.

Access Intelligence, a computer group that once graced the portfolio, is one that attracted him, although he arrived after the portfolio had departed. Since he took charge and conducted cash injections, as well as indulging in takeover action, Access's prospects have improved significantly.

The possibility of more cash-calls could restrain SnackTime's shares in the short term. And with directors and City institutions accounting for 85 per cent of the capital, there is not much of a free share market. With credit likely to become more easily available as the recession recedes, SnackTime could be tempted to tap the banks and avoid more share issues. And I would expect, perhaps through acquisitions, more shares to come into the public domain. The group is looking around for deals.

Although displaying understandable cautiousness – what company chief offers unbridled optimism these days? – Jenkins talks about the group achieving "significant growth" last year, and anticipates further expansion in the months ahead with the economic climate prompting more companies to adopt the vending machine route. But the recession appears to have been a factor in forcing SnackTime, based at Wokingham, Berkshire, to withdraw machines "from a larger than anticipated number of customers".

Besides growing its spread of machines the group, with five main distribution depots, is planning to introduce a system for outlets that are too small for the loan policy and is also launching hot drink facilities.

There is, as I am sure some of SnackTime's vending machine customers acknowledge, many a slip 'Twix cup and lip. And small caps are obviously more risky than blue chips. But there seems every chance that this little group has descended on a niche corner of what is a highly competitive market. There is also the possibility that its growing presence could prompt a predator to strike. Any deal, of course, would need the blessing of the board.

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