Derek Pain: The trio that's keeping me in high spirits
No Pain, No Gain
Friday 25 January 2013
Latest trading updates from the no pain, no gain portfolio have been remarkably enthusiastic. A trio of members - Booker, Mears and Spirit Pub Co - have kept up the encouraging tone set nearer the start of the year by constituents Animalcare and TEG.
It seems that the portfolio's "high five" are maintaining the exuberant nature of the stock market's run of New Year trading statements. True, once powerful names on the high street have encountered debilitating difficulties and the nation's economic revival may be causing some concern, but the overall City picture is considerably brighter than many anticipated. No wonder the Footsie has hit its highest level for some years.
Investors have come to expect strong performances from the Booker cash and carry group. It did not disappoint. Third quarter sales rose 3.1 per cent, pushing the shares ahead to around 100p. I believe they would be higher but for the uncertainty created by the Competition Commission's examination of the group's £140m take-over of the rival Makro chain. The Commission is unlikely to report for a few months. Charles Wilson, Booker's chief executive, seems optimistic the deal will eventually be cleared. He declares: "We are excited about the opportunity of Booker and Makro coming together". Makro has found the going tough in recent years and the Wilson team clearly have high hopes of quickly reviving it.
Mears, the support services group, seems to have regained investors' enthusiasm. Its trading update helped lift the shares, as I write, to around the 350p mark, not so far from the 385p high hit in the group's halcyon days earlier this century when the shares were stock market darlings.
David Miles, chief executive, talks about a "solid" trading performance in both core operations – social housing and home care.
Integration of loss-making Morrison Facilities Services is going well and the £24m acquisition has, with more contract wins, helped lift the group's social housing order book from £2.6bn to £3.8bn. Its bid pipeline is around £3bn.
The only fly in the ointment is the previously profitable mechanical and electrical division, now expected to be loss-making over the year. However, it is a relatively small part of the group.
Spirit shares are around their highest since the group was demerged from the struggling Punch Taverns. Over the first 20 weeks of its year chief executive Mike Tye describes trading as tough but adds the Christmas session was strong. The group's managed pubs increased sales by 2.3 per cent. The leased division was less successful as rent reviews fell due. Many of the rents were previously fixed when the pub business was riding high. Spirit, like a few other pub owners, is experimenting with replacing some lease contracts with franchise deals. So far it has invested in eight franchised outlets and is still selling unwanted pubs. Stockbroker Shore Capital says buy, forecasting pre-tax profits of £56.8m.
Unlike Animalcare and TEG, where the portfolio is suffering losses on its investments, the three latest updaters are in the money. Booker was selected four years ago at 24.5p; Mears nearly a year earlier at 272p; and Spirit, now around 67p, arrived in August 2011 at 42p.
Mears is one of the few shares to re-visit the portfolio. The support services group was an early recruit. Shares were acquired at 23p. I had decided to buy them at 18p and was dismayed by their sudden strength. Indeed I almost shelved the purchase as I wondered whether the group had become too expensive. In the end the deal went ahead. I'm glad it did as the portfolio sold the shares a few years later at 84p. A nice little earner, as they say.
The only other shares to make double appearances are My Home International, a franchise group with irons in many fires, and Essenden. My Home went belly up although the portfolio ended up comfortably in the black. Essenden, a ten pin bowling group, is my last recruit, arriving late last year. It featured earlier as the Georgica bowling alleys and snooker halls business and was also a money-maker.
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