Derek Pain: SnackTime's tasty takeover brings hope of bigger things to come

No Pain, No Gain
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The Independent Online

SnackTime appears to have pulled off a remarkable deal, although the stock market greeted its initiative with complete indifference. It is, in effect, a reverse takeover, costing nearly £11m against the £10.3m vending machine group's capitalisation.

The expansion-hungry snacks business is acquiring Vendia, which spreads nationally operating under four brand names. The logic of the deal seems to be that Vendia is big in hot drinks whereas SnackTime is still largely a cold drinks supplier. A happy mix, then. It is – almost – an all-paper deal with shares and warrants, with lock-ins, making up all but £500,000 of the consideration. And even that cash outlay is on a deferred basis. The stock market was, however, completely unimpressed, leaving the shares, as I write, unchanged at 137.5p

SnackTime, recruited to the No Pain, No Gain portfolio a year ago, has long been keen to add hot drinks to its menu. It has a fledgling operation created from scratch but no doubt sees Vendia as a quick-fix solution. As a result of this deal, the enlarged group will have 30,000 customers and will rank as the nation's fourth-largest drinks and snacks vending machine operator.

By SnackTime standards it is clearly a hearty meal. That, of course, could be a problem. The danger of acute indigestion must be high. Blair Jenkins, the chief executive, recognises that possible problems could lurk and has instituted a series of management changes. From the day it became a portfolio constituent, SnackTime has made no secret of its expansion agenda. Earlier this year, it paid £1.5m for what was then described as its biggest rival, MBM Systems. It makes no secret of its desire to become Europe's biggest drink and snack vending machine operator.

Last year, it achieved a sharp increase in profits, but in strict terms suffered a loss. Reorganisation and rebranding costs, plus setting up a marketing department, did the damage. Perhaps that is why Mr Jenkins does not expect the latest deal to be earnings-enhancing until the year ending March 2012.

Vendia shareholders will control 29 per cent of the enlarged capital, sharply reducing the stake of Elderstreet, the investment group that has a long involvement.

Another constituent, Lighthouse, has produced interim results. The figures were encouraging with revenue up 11 per cent and pre-tax profits emerging at £117,000 against £56,000. The accountancy and wealth management group has £12m stashed away in the bank. I regard Lighthouse's low share price as one of the mysteries of the stock market. It is profitable, dividend paying (a 0.12p interim will be distributed next month) and has sufficient cash in the bank to cover its capitalisation.

Other portfolio members have been making waves. Booker, the cash-and-carry chain, indicated that interim results will be strong by revealing that first-half sales were up 5.5 per cent with a 6.1 per cent gain in the second quarter. It has £10.1m in cash compared with a £4m debt this time last year. Stockbroker Evolution Securities has a buy recommendation on the shares. And Mears, the support services group, has, intriguingly, teamed up with British Gas to provide energy-efficient social housing. The first deal should be clinched towards the end of the year.

Mears has also acquired social housing contracts previously conducted by its failed rival, Connaught. Most of the stricken group's arrangements went to construction group Morgan Sindall. Whether the new providers will make much cash out of the contracts remains to be seen. After all, Connaught seems to have excelled in signing up ruinous deals.

The portfolio's two blue-chips continue to receive stockbroker support. Charles Stanley has an "accumulate" tag on Whitbread and Seymour Pierce is still running with a 320p target on security group G4S.

It has been a mixed few weeks for G4S. The South African operation has been extended through a modest buy but in the US it lost a Nasa contract covering 14 installations. It still has contracts for six Nasa centres. And the powerful institutional investor, Credit Suisse, seems to have given up on the security giant. It once had more than 8 per cent but has now declared it no longer has a notifiable interest – so its stake is certainly below 3 per cent and I would guess is down to zilch.

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