Derek Pain: SnackTime remains hungry to expand despite rising costs

No Pain, No Gain

SnackTime, the little vending group, has yet to justify its membership of the No Pain, No Gain portfolio. The shares were recruited some 18 months ago at 119p and seemed to be en route to top 200p. But as enthusiasm waned, the price drifted down to 105p. Still, I am not at all downhearted. A trading update indicates the business is not doing badly and the Arbuthnot investment house is clinging to a 230p target.

It seems that Britain's fourth-largest vending group is set to deliver adjusted profits of about £1.1m for the year ended March, although it complains that trading conditions are tough. Inflation is taking its toll. The soaring cost of raw materials, easily outstripping official inflation calculations, is having a significant impact. In the first quarter of this year, SnackTime had to contend with a 12 per cent increase. To add to its discomfort, the vending market is contracting as customers, mainly companies and public authorities, cut back on staff benefits. Last year's decline was 4 per cent and the same erosion is expected this year.

The expansion-hungry business is confident that it can increase its slice of the drinks and snacks-vending market and points to having won some enticing contracts. And it has restructured to cut costs. The group arrived on the stock market towards the end of 2007 with the shares sold at 144p, valuing it at £10m. Since then, two significant takeovers, costing £12.4m, have occurred with shares and warrants representing much of the acquisition currency. Further deals are likely. The company is now capitalised at a modest £17.2m. Subject to inflation coming in at the lower end of expectations, it hopes to achieve strong growth this year. Arbuthnot is looking for profits of £2.1m this year and then £3m next year.

Avation, the aircraft-leasing group that joined the portfolio in January, has also produced an update. It says trading is "substantially in line" with expectations. Earlier this year, £10m was raised in a private share-placing to help to increase its leasing squadron. The company has arranged a deal to provide aeroplanes for a new Australian network being created by the Virgin Blue airline.

The first of up to 18 newly-built aircraft is due to arrive at the end of June when Avation will start enjoying the rewards of this intriguing link. A further addition could join Skywest, another "down under" airline, in August. Avation is, I believe, the only company to move from the fringe Plus share market to full listing without stopping on the way at the Alternative Investment Market (Aim). It arrived on Plus, a spin-off from Skywest, at 4p. When it switched markets last year, the shares fell to 58p. They are now 120.5p, capitalising the company at £46.4m. The portfolio climbed aboard at 83.5p.

The shares of another constituent, Mears, remain in the doldrums. Since announcing quite reasonable, although somewhat confusing, year's figures two months ago, the support services group has felt the anger of bear raiders who have knocked the price from just above 300p to, at one time, below 240p. As I write, the shares are at about 255p against a year's high of 326p.

Mears, which is spread over social housing and home care, attempted this week to deflect the pessimism of some analysts by reporting that it continues to experience "solid trading" and is winning new contracts. Its order book stands at £2.7bn with 93 per cent of this year's revenue and 80 per cent of next year's already in the bag. Mears has added to its interests by acquiring some home-improvement agencies which carry out repairs and handyman services to the homes of vulnerable people.

I have stuck with Mears in spite of the intensity of the disappointment with last year's results. The company looks to be in pretty good shape to me and my present intention is to hang on.

Another constituent, Whitbread, is also well below its year's peak. The shares stand at about 1,650p after nudging 1,900p. Rumours are floating around that it intends to split into two. The idea is that the Costa Coffee business would become a standalone company with Whitbread keeping the budget hotels and pub/restaurants. Costa is big enough to make its own brew. Its operating profits last year were £50.1m.