Derek Pain: Thinking the once unthinkable - time to dump the Booker shares


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The Independent Online

I am contemplating what was once unthinkable – dumping the shares of Booker from the No Pain, No Gain portfolio. Worries have surfaced following a sales growth slowdown that has prompted a de-rating.

There is talk that the shares should no longer be regarded for their growth potential but looked upon more for the ability to generate income. The cash-and-carry chain is undoubtedly experiencing a handsome cash flow and has demonstrated its willingness to spread a little joy among shareholders with a 3.2p year's dividend and a bonus of 3.5p a share. What's more it has indicated the special payment could be repeated next year.

The trouble is, the portfolio ignores distributions to shareholders. Its calculations are based entirely on share performances. So, it has been harmed by Booker's share slide from a 176.5p peak to, as I write, 128p and cannot claim the dividend and bonus cash the group would have added to its kitty.

There is always a danger of a small shareholder – as I am – falling in love with a share. Booker has been the portfolio's star performer for a long time. Indeed it still is. But the calamitous performance of the shares in the past few months is nerve-racking and if they go much lower I will be obliged to lock in the still substantial profit.

In the first quarter of its year Booker lifted sales by 3.8 per cent. I was happy with such an out turn but it does reflect increased competition. After all the price war is raging and the hungry supermarkets' moves into convenience shops cannot help. Booker is attempting to counter such intrusions with an independent chain called Family Shopper, a type of convenience and discount store. It now has eight and hopes to go to 300 to 400 in a few years.

It is also supplying the BHS extension into food retailing. In addition, the Makro integration seems on track, the group is making increasing use of the web and has developed a foothold in India.

So it is still ambitious and performing well, but some in the market have got cold feet. Nicola Mallard, an analyst at investment group Investec rates the shares a buy, has a 178p target price and is looking for profits to advance from £118.7m to £135m this year. But Clive Black at broker Shore Capital has a hold recommendation, though he expects profits to be £139.8m.

As Mr Black points out, Booker's shares have been in retreat since Morrisons, the supermarket chain, launched its attack on prices and created a frantic scramble by its rivals to match the discounts. Whether the stock market has collected an unnecessary bout of Booker jitters has still to be decided. The trouble is once it has become anxious it is too often reluctant to admit it has got it wrong and restore some of the previous lustre that once surrounded a share.

Animalcare, the veterinary products group, has produced a moderately encouraging update. With revenue up 6.3 per cent at £12.9m, it expects the year's profits to emerge around £2.6m. So analyst Savvas Neophytou at stockbroker Panmure Gordon has again reiterated a buy recommendation and again placed a 245p target on the shares.

As readers will know, I have become increasingly deflated with the company's position in the portfolio. The shares were recruited in November 2011, at 171p. They are now around the 150p mark. Although, as Panmure Gordon says, the company is dividend paying and cash generative, the portfolio stands or falls on capital appreciation.

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