Derek Pain: Stick with Booker success story despite the Makro setback

No Pain, No Gain

Is trading at Booker, the cash-and-carry chain that is the star of the no-pain, no-gain portfolio, slowing down? Chief executive Charles Wilson has warned that the acquisition of rival business, Makro, could initially inhibit progress. But last week's update could imply growth in the original part of the operation had lost some momentum.

When a share is highly rated, as Booker undoubtedly is, any modest hiccup can create widespread disenchantment in the City. But the chain seems to have shrugged off any deep disappointment. The shares held up relatively well, just short, at the time of writing, of their all-time peak although stockbroker sell recommendations were heard. Shore Capital produced one of them. But even its target price was just a few pence below the then ruling level.

I am happy to retain Booker in the portfolio. After all the shares have soared from 24.5p to around the 130p mark since recruited in January 2009. And I think further advances are likely. Even if the shares hold around their current level they deserve to remain a constituent. As readers may recall I have placed a 100p sell price on the shares and all things being equal I am pleased to stick with such a decision. But I repeat my advice that any investor who followed the portfolio into the shares should think about selling, say, half their holding; thereby reaping a nice profit yet staying in, at no cost, for the ride.

Booker has made no secret that the struggling Makro operation could hinder its growth until the once-German-owned chain is fully integrated. There is evidence that Makro, for which Booker splashed £140m in cash and shares, is already proving a drag. Total group sales were up 13.6 per cent in the first quarter. However, like-for-like core Booker sales were ahead just 1 per cent, dented by a reduced tobacco showing with illegal imports and the ban on displays taking a toll.

Like-for-like Makro sales, included for part of the quarter following Competition Commission clearance in April, were down 6 per cent. Booker achieved a handsome pre-tax profit advance last year – to £101.4m – and I expect it to make further progress, despite Makro's unhelpful contribution, this year.

I am encouraged by the performance of Whitbread, the leisure group. A few months ago some stockbroker analysts were on the warpath, clamouring that the shares should be sold. Yet since then the shares have turned in a sterling display, crossing the 3,200p line and, as I write, hovering at 3,225p.

Analysts play a vital role in the stock market. However, some have a short-termism brief. After all they like to generate share trading, hopefully gaining business for their employers. I would never dismiss analyst comments. But for buy and hold investors, such as the portfolio, their observations quite often have little longer-term relevance.

Although the portfolio has a display of profitable investments, Animalcare, making veterinary medicines, is not one of them. The shares are around 141p against a 171p buying price. But I think my patience will be rewarded. A trading report for the past year says revenue was up 11 per cent. Three medicines were launched and a fourth received approval just before the year end. Other new products are on the launchpad. The animal identification division had a difficult time but results were "slightly ahead" of expectations. The group believes it should meet stock-market estimates that suggest a profit of around £2.8m.

Finally, I have said on many occasions that investors need a little luck .The portfolio had a helpful, if fairly minor, sprinkling of good fortune last week. My decision to unload the G4S security group was made just before the latest setback – problems over tagging contracts – became known. The shares were dumped at 228.3p against as low as 204p following the latest débâcle. Although approaching the bargain-basement level, many expect them to fall even further. A rights issue is rumoured. The group is certainly accident prone. The latest episode is the fourth time in recent years that G4S has suffered self-inflicted wounds. This could increase doubts about future Government contracts.

yourmoney@independent.co.uk

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