Derek Pain: Triple whammy will put the skids under my quarterly accounts

No Pain, No Gain
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The Independent Online

The no pain, no gain portfolio has suffered a few bruising blows in recent weeks. A trio of constituents has produced far from comforting statements which will adversely influence my quarterly profit and loss accounts, due soon.

Still, its not all gloom and doom.

At least the star performer has hit new highs. The share display of Booker, the cash and carry chain, has reinforced my view that any reader that followed the portfolio should consider selling around half their shareholding, thereby locking in profits and achieving what amounts to a free ride with the remaining stake. Unfortunately the portfolio cannot adopt such a tactic as each shareholding must represent a £5,000 investment.

Such a stipulation is often a nuisance but helps transparency. Booker, purchased at 24.5p in January 2009, approached 90p following the announcement of the proposed £140m cash and shares acquisition of its smaller and rather unsuccessful rival, Makro.

Chief executive Charles Wilson and his team have spectacularly reinvigorated the once-fading Booker chain and there is nothing to suspect the 30 Makro sites will not undergo a profitable transformation. The seller, grocery giant Metro, will end up with 9.9 per cent of Booker's capital and could prove an invaluable partner.

Mr Wilson estimates that the loss-making Makro warehouses and the increase in Booker's capital will prompt an earnings-dilutive performance in the current year, but there is a widespread City belief that the deal could add a fifth to earnings by 2015. Booker shares are not on a cheap rating. But with a recent, 27 per cent pre-tax profits advance to £90.8m and the expected Makro benefits they are still worth buying. On the surface, therefore, my advice to sell some shares could be regarded as contradictory but there is nothing wrong with taking a profit.

Indeed, the fall from grace of Hargreaves Services supports such a safety-first attitude. For long a highly profitable portfolio member, the company's shares – recently above 1,200p and with some analysts confidently nursing a 1,500p target – crashed to less than 700p following the shock profits warning.

Unexpected problems at its Maltby colliery could wipe up to £16m from this year's profits. It seems that gas, oil and water seeped into a new section of the mine and safety considerations prompted the group to abandon the extension.

As Paul Jones at Panmure Gordon observes, Hargreaves must be the only company disappointed to find oil. He has cut this year's profits forecast from £60m to £44.1m with £67m estimated for the following year. As I write, the shares are around 770p. The portfolio paid 417p and is still in profit, albeit a much diminished one. Although obviously disappointed by the setback, I am not, unlike Mr Jones, a seller.

Unfortunately, the portfolio is now showing a loss on Animalcare, a veterinary products group, that also issued a surprise profits warning. Although medicinal sales increased by 15 per cent, the microchip operation has taken a hit.

Still, dog identification could eventually become mandatory and any such introduction should, I believe, be beneficial. However, for the year ending this month analysts Chris Glasper and Sahill Shan at oddly named stockbroker N+1 Brewin have reduced their profits forecast by 14 per cent to £2.5m.

SnackTime, the vending group that is the portfolio's worst performer, also produced some disquieting news. Not a profits warning – there have already been two – but the departure of chief executive Blair Jenkins. A 9.5 per cent shareholder, he was the major player when the group was created around the turn of the century.

Mind you, SnackTime's recent display has been far from inspiring. With its shares at 40p it is now capitalised at £6.5m against £10m when it arrived on the stock market in December 2007. In the intervening years quite a few shares have been issued for acquisitions and cash-raising exercises.

Mr Jenkins has left "to pursue other interests". Jeremy Hamer has become executive chairman, presumably taking over Mr Jenkins' role. He is no newcomer to the portfolio having presided over Inter Link Foods, one of its earlier successes.

The portfolio alighted on the shares at 119p; they subsequently approached 200p. Last month, four directors, including Mr Jenkins, acquired 245,000 shares at up to 44p.

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