Derek Pain: SnackTime promises healthy returns with sales rising by 19%

No Pain, No Gain
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The Independent Online

Shares of SnackTime seem to be stuck in a rut.

Since late September, the vending-machine company has, in effect, doubled its size through an acquisition and produced much improved interim profits. Yet its shares, which stand at about 135p as I write, have not stirred. The market in the stocks of many small caps is exceedingly thin, with many a day passing without a solitary deal in sight. Even so, it is rather strange that SnackTime has attracted so little interest. I would have thought the two announcements would prompt at least a little buying or, perhaps, as some shareholders have profits to lock in, a smattering of selling. But trading has been almost non-existent; the stock market has given the group, capitalised at about £22m, a complete blank.

The No Pain, No Gain portfolio picked up the shares at 119p a little more than a year ago. Since arriving on the stock market in late 2008, they have moved from about 80p to top 180p earlier this year. I last commented on SnackTime when it embraced another vending company called Vendia. The overriding logic behind the deal was that Vendia was big in hot drinks, a section of the market that SnackTime, largely a supplier of cold drinks and snacks, was keen to add to its menu. The near-£11m acquisition was largely a paper deal with locked-in shares and warrants providing most of the bid ammunition.

The group's interim figures, like its most recent full-year results, were distorted by a £1.8m profit achieved on an earlier acquisition. Assets of that particular victim were much higher than the takeover outlay. So, in the half-year to the end of September, pre-tax profits emerged at £201,000, compared with £809,000. But stripping out the special profit, SnackTime, with a 19 per cent sales increase, has clearly made headway and the stockbroker Arbuthnot expects profits of £1.1m for the year.

Another portfolio constituent where trading in shares is negligible is Private & Commercial Finance (PCF), a hire-purchase company. Its shares, however, have given ground, admittedly in thin trading. At about 6p, the company is capitalised at a mere £3.2m, making it the smallest portfolio constituent. A number of influences have helped to destroy value at PCF. At one time, the shares seemed to be heading for 100p. Today such a possibility dwells in the realm of fantasy. Yet shareholders were reminded last month of the group's once high-flying status when a loan-note holder converted into shares at an astonishing 76p a share. It was not the first time that loan notes had been exchanged for a figure well in excess of the then ruling share price.

The company complains that lack of cash is restricting its ability to write business. The chief executive, Scott Maybury, says new lending opportunities exist but the group is experiencing difficulty raising the wherewithal. So it is concentrating on what it calls "good-quality business" and improving margins. Nevertheless, tight credit conditions are clearly affecting the business. Next month it will announce interim profits which should be in line with most expectations. For the full year, about £500,000 is expected. One lone stockbroker analyst was at one time predicting more than £1m, but has since fallen into line with the £500,000 view.

The portfolio recruited PCF early in 2007 at 19.5p. I took the view that the group had overcome its difficulties and represented an interesting recovery play. How wrong can you be? I have in recent times threatened to dump the shares and, if the interim figures turn out to be disappointing, I will feel obliged to do so.

I note that Plus-traded English Wines Group (EWG), which was evicted from the portfolio last month, has since reported a 30 per cent increase in its harvest. The chief executive, Frazer Thompson, says the crop should contribute to higher sales of sparkling wine from 2012 and should help to meet demand for still wines from next summer. One of the obstacles EWG has encountered is an inability to meet demand. I sold the shares at 13.5p. They are now trading at 12p.

Finally G4S, the security giant recruited earlier this year. Its shares have fallen below my 264p buying price but the stockbroker Panmure Gordon expects them to improve. It has a 315p target compared with the current level of about 250p.

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