Derek Pain: Star-performing Booker's board worth every penny

Np Pain, No Gain
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The Independent Online

Investors are rightly appalled by boardroom greed. Particularly obnoxious is the culture that richly rewards mediocrity, even outright failure. But sometimes shareholder anger is misplaced. A prime example occurred last week – at the yearly meeting of Booker, the star of the No Pain, No Gain portfolio.

Some shareholders, under the influence of advisory group PIRC, voted against the cash and carry group's remuneration report and against the election or re-election of directors. At times the opposition seemed to command around a fifth of the votes. Directors who endured resistance included Charles Wilson, the chief executive. It seems the granting of share options caused some distress. I am no fan of the options system (I prefer salary incentives) but these days a company that does not offer options could find itself at a disadvantage when recruiting.

It is, I believe, unfair for shareholders to assail Booker's board where salaries are far from excessive. More importantly, the condemnations ignored the startling success of the group since Mr Wilson and his team got to grips with a business that seemed to have lost its way. He is a former Marks & Spencer director and when he switched to Booker, retail tycoon Sir Philip Green remarked that the move was like a footballer transferring from the mighty AC Milan to little Scunthorpe United.

Not long after the group returned to the stock market through a reverse takeover of a loss maker in 2007, the shares were around 15p. As I write they are 74p after topping 77p. Profits progress has been outstanding. From £6.3m, the pre-tax figures have soared to £71.4m. Not many companies have exceeded Booker's growth. And, judging from the retail woes we hear about daily, the group clearly operates in an exceedingly difficult market.

The advance reflects credit on the management and as a shareholder I am immensely satisfied and believe the board is currently worth every penny it earns. It will, however, be hard retaining such dramatic progress. I would not be surprised if revenue growth slows but I expect continued headway in the next few years. The first 12 weeks of the current yearproduced encouraging trading, although a few extenuating influence like the weather and Easter contributed. Nevertheless, sales rose 9.5 per cent with tobacco turnover up 10.1 per cent as customers rushed to beat signalled duty increases. Besides running 172 cash and carry warehouses, Booker also embraces delivery and internet services. The group has around 460,000 customers, including convenience shops and pubs. Its sales network also embraces cinemas and even prisons. Besides developing its warehouses it is making strenuous efforts to increase the delivery side.

And there are high hopes its fledgling venture in India will eventually reap rich rewards. Progress has so far been slow with one warehouse in Mumbai and another about to open. A joint venture outlet is near to completion in another Indian city.

The portfolio descended on Booker at 24.5p in January 2009. The shares are its best performing constituent. There is, however, a danger of falling in love with a high flyer and ignoring the need to offload when problems start to loom. As a safeguard I have set a 55p downward limit on the shares. During the portfolio's 12-plus year's existence it has on occasions been far too slow to sell; not only to reap profits but also curb losses. For example, I did not unload restaurant chain Prezzo when the shares were around their 95p peak, eventually departing at 60p. And, I should have sold such disasters as Profile Media and Pubs'n'Bars at the first hints of serious difficulties, but lamentably failed to do so.

I am not, however, at all bearish about Booker, despite the parlous state of the retail environment. In my judgement the shares, although highly rated, are not overpriced and should continue to make relative progress whatever happens to the stock market as a whole. An outstanding record does not necessarily make any share worth buying – the investment adage that the past does not guarantee future performance, springs to mind. Nevertheless, as steward of a portfolio, it is wise to try and accommodate all eventualities. Still, I will be intensely disappointed if I do have to sell Booker at 55p.

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