Derek Pain: 'Suspension of Safestay is a good reason for bedding in'

Safestay, which the No Pain, No Gain portfolio recruited in May, hopes to complete two acquisitions, which are valued at £21.2m

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The Independent Online

The No Pain, No Gain portfolio has to contend with another share suspension. But this time there is nothing to worry about: for once the freeze heralds expansion, not deep-rooted troubles.

Safestay, which we recruited in May, hopes to complete two acquisitions, which are valued at £21.2m. With the hostel group's capitalisation amounting to £13.3m, this is seen as a reverse takeover under AIM rules, requiring an initial block on share trading.

The shares were suspended at 69p, slightly below the portfolio's buying price. I still retain hopes they will represent a profitable investment and the two deals should enhance the group's appeal. But to accommodate the expansion, a cash-raising exercise is required – which the portfolio, under its own rules, will not entertain.

The upmarket hostel group is planning to buy a property in Milan, which it will turn into its first continental venture, plus another in this country. The Italian job will have approaching 300 beds; the signs are that the UK investment could be much more extensive. The twofold cash-raising is likely to amount to £23.5m – a £15m rights issue and £8.5m of borrowings.

But Larry Lipman, Safestay's chairman, injects a note of caution. Although negotiations are obviously advanced, he says: "There can be no guarantee that the fundraising or acquisitions will programme to completion."

He also reports that the first five months' trading has been "satisfactory", although a back-office build-up is influencing profits. South London's Elephant and Castle hostel performed well but the York property has had a slow start, although trading is improving. The new Notting Hill venture, in west London, is scheduled to open today.

From a relatively new constituent to a long-time one. Brewer Marston's, recruited six years ago, rolled out an encouraging 41-week trading statement that prompted Greg Johnson, an analyst at the stockbroker Shore Capital, to suggest the shares had a "fair value" of 180p against, as I write, a price of 153p.

Chairman Ralph Findlay said the new living wage would be partly offset by lower tax bills.

The group's retail expansion continues and brewing sales were up 4 per cent. Adding the Thwaites beer division, acquired in April, to the total volume produced a 10 per cent gain.

Finally, there is a glimmer of hope that an improvement is setting in at SnackTime, the cash-strapped vending machine group that has long been a drag on the portfolio's performance. Although last year's figures, yet to be released, are likely to be hurt by increased provisions, the group stated that current-year trading had been "encouraging".

The bottom line is still being influenced by cash consumed by exceptional charges, capital expenditure and debt servicing. As the company points out, "cash remains under pressure".

I should have sold SnackTime many moons ago. But I dallied for far too long and with the shares now in single figures, against my 119p buying price, there seems no point in quitting now.

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