Derek Pain: Time to batten down hatches

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The Independent Online
There is no need to panic; batten down the hatches until the stock market comes to its senses. That's my advice for any inexperienced investor worrying about the disasters which, if you listen to the siren voices, are overwhelming the share-owning community.

There is no need to panic; batten down the hatches until the stock market comes to its senses. That's my advice for any inexperienced investor worrying about the disasters which, if you listen to the siren voices, are overwhelming the share-owning community.

Make no mistake, veteran long-term stock market investors will not be losing much sleep. They have seen it all before. A few years ago it was the Asian and Russian economies, plus a now largely forgotten hedge fund, demolishing shares. Early in the 1990s there was the ERM imbroglio and before that the infamous 1987 crash.

Today even the slump of 1987 hardly registers on the Richter scale. The stock market has an ability to absorb setbacks then move higher. I can see no reason why history should not repeat itself.

The worst possible reaction is to be panicked into selling shares at knock-down prices. Don't forget someone buys them ­ and he is the one making best use of the setback.

I would not condemn any investor who makes a few judicious additions to his share collection. But at the risk of being contradictory, there is much to be said for locking in profits by selling, say, half a shareholding which is showing a good gain. Allied Domecq and Mears are among the no pain, no gain constituents in this category. Holding the remaining shares at, in effect, nil cost is a happy state.

Most of the shares I have written about over the past two years ­ and in particular the members of the no pain, no gain portfolio ­ have earnings and dividends to their names. I expect them to continue to make profits and pay dividends; unlike many of today's hi-tech laggards.

Naturally the portfolio has suffered. Seven of its 16 constituents record losses. Most are modest. With the exception of the ailing Lynx computer group and Global, a food group, I am relatively relaxed about the fallers.

I feel sorry for Global (see below). When I descended on the shares in May 1999, the group was responding to remedial treatment by chairman Ken Manley. It is the biggest supplier of beefburgers to independent traders and a major provider of a wide range of meat and pastry products. The group is also our biggest meat exporter/importer.

Global was hit by last year's poor weather, which depressed the beefburger business. It had profits of £5.1m against £6.8m. Now Global is a hostage to the foot-and-mouth epidemic impacting on meat and pastry products. Stockbroker WestLB Panmure forecasts profits of £3.2m this year. At 11p the shares are in the doldrums. Although the group's longer-term prospects remain encouraging, the next few months will be tough and the shares are likely to be poor performers for some time.

Gowrings, another constituent faller, is also a beefburger casualty. Last year like-for-like sales at its Burger King outlets were down 2 per cent. With its car division also in reverse the group profits fell from £1.9m to £1.2m

Like Global, Gowrings is a well-run company hit by circumstances beyond its control. The car side is improving but it is prudent to be cautious over the fast-food restaurants. Stockbroker Peel Hunt expects only a partial recovery this year to £1.4m.

Another long-term constituent is Galliford Try, the construction group. It produced interim results up to best expectations. The shares, at 30.75p, are below their peak but comfortably above our buying price. The group was created last year when two smallish firms merged to form a business now capitalised at £60m. Half-time profits were £6.5m (£5.6m) but, after absorbing the costs of the merger, the figure is £3.2m.

Prospects are encouraging. For the year to end-June profits are expected to emerge at about £12m with, perhaps, £16m in the following year.

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