Derek Pain: Time is running out as I lose patience with my four losers

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The Independent Online

Should I dump the under-performers from the No Pain, No Gain portfolio? I am suffering four loss- makers and growing increasingly exasperated with three of them.

My quartet of "delinquents" are Animalcare, a veterinary products group; Brightside, an insurance broker; TEG, an environmental group; and SnackTime. Animalcare and TEG have entered 2014 with less than exhilarating trading reports and Brightside has been prompted into a share placing raising £6.8m at a lowly 15p a time. SnackTime, where the portfolio is suffering a particularly daunting reverse, is the subject of a possible takeover bid and, as I explained last week, there seems little point in selling.

Animalcare and TEG were acquired in November 2011 and Brightside in the summer of 2012. A few times Animalcare has managed to display a modest profit from the 171p buying price but following its latest trading statement is, as I write, residing at 155p. I cannot recall TEG ever showing a profit and against an 8p purchase is now around 4p. Brightside arrived at 18.5p and bumps along at 16.75p.

I dealt with the vets last month but TEG, a week ago, managed to dash my hopes that it was near to achieving the performance I had long anticipated. Its half-year comments in September were relatively reassuring with losses reduced substantially and turnover much higher. There were, however, a few flies in the ointment such as contract delays and it would seem they have continued and could blight the full year's results. TEG seems confident that things will improve; I hope they will but my patience is growing a little thin.

Brightside is a sad example of a failed takeover bid. I have several times considered selling the shares but resisted the temptation. A Gibraltar-based insurance group called Markerstudy last year had designs on the company. The stock market envisaged a bid at around the 27p mark. But it seems Brightside was not trading at the level the City – and Markerstudy – expected.

There are suggestions the possibility of a change of ownership may have damaged its operations and suddenly the proposed bid was reduced to a price in the region of 20p/22p. Not surprisingly the talks collapsed and the shares dropped to near the portfolio's buying level. The placing, however, has sent them even lower.

The extra cash was initially needed to "prevent the possibility" of breaching a bank covenant. The group suffered a "short-term cash shortfall" but expects to get back on a more even keel as the year progresses. Still it has warned that past year profits will be hit, possibly down 20 per cent. Could Markerstudy be tempted to return? I doubt if it took part in the placing so its 12 per cent stake will have been diluted. Even so, under City takeover rules it will soon be able to renew its interest and even its 20p/22p valuationcould look attractive.

I have been accused of not being ruthless enough when it comes to poor performers. I must admit a certain reluctance to lock in a loss, particularly when there is a chance of eventual redemption. The portfolio is a long-term investor and short-term considerations are ignored. Still Animalcare and TEG have had plenty of time to get their acts together. I cannot allow them much more leeway. For Brightside there remains the possibility of a bid, although it is always unwise to rely on one.

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