Hacking into a chance for a Net profit

No Pain, No Gain: Our Man's Portfolio
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The Independent Online

HOW ABOUT a modest Internet play with the back-up of profits as well as dividend payments?Such a combination does exist - in City of London PR Group, one of the smaller financial publicrelations operations.

HOW ABOUT a modest Internet play with the back-up of profits as well as dividend payments?Such a combination does exist - in City of London PR Group, one of the smaller financial publicrelations operations.

First I must declare an interest. I have known John Greenhalgh, founder and controllingshareholder, since the Sixties when we worked together in the City office of the late, lamentedLondon Evening News.

In those days he was an avid investor and retained his enthusiasm when he moved into publicrelations. Indeed he could be criticised, perhaps, for using too much of City of London's flotationcash building a share portfolio instead of developing the group's core businesses.

But the former hack could justifiably respond by pointing out he has created an investment spreadworth around £6m, and City of London has an enviable dividend record. Last monthinvestments equalled 87p a share although, after the sale of a market research company, it could besuggested investment assets (including cash) stood at some 95p a share.

The market research sale was rewarding. City of London paid £50,000 for the business eightyears ago, trousering £1.1m when it unloaded. Some £200,000 of the gain has beenpumped into a start-up Internet operation called CBSH. In typical Greenhalgh fashion, theinvestment has been cautiously structured with City of London's up to 49.9 per cent interestrepresented by a five-year convertible loan note.

CBSH is launching a web-based service linking companies around the world with 1,300 existingInternet sites. It provides details of buy or sell offers on a variety of products and also lists statisticsand details of companies operating in specific fields.

There are hopes of several thousand users by the end of the year and Mr Greenhalgh expects hissurfing exercise to be cash flow-positive in six months.

The CBSH push is the first aimed at companies wishing to buy and sell through the Internet. Thereare estimates that commercial enterprises will, through the Web, sell each other £12.6bn ofproducts this year, a far higher figure than most estimates for what many regard as the moreexciting consumer purchasing log on.

City of London could be on to a realistic Internet investment; the beauty is that even if its hopes arenot realised its limited exposure will not cause any anxiety.

I have been accused of ignoring hi-tech shares in the construction of the no pain, no gain portfolio.Well, I am something of an investment Luddite; I do like to see profits and feel the payment ofdividends is an essential factor in portfolio building.

City of London meets, even with its Internet touch, what in these investment surfing days, appearsto be old-fashioned requirements and should be a rewarding addition to the portfolio.

The group's public relations side, which has a heavy mining exposure, does not appear to havemuch going for it. Last year it made £246,200, up from £230,900. Attempts in recentyears failed to expand its spread of interests. At one time it seemed near buying the Citigatefinancial public relations group, now a major part of Incepta, which has a capitalisation of £137.5m against City of London's £9.5m.

The investment portfolio is actively managed and contains Greenhalgh specialities - convertiblepreference and irredeemable preference shares. It also has such ordinary shares as jeweller Signetand holidays group First Choice.

Other holdings include OsmeTech, the old AromaScan, and Prime People, the catering recruit- mentgroup. For a long while the PR group's shares bobbed around between 70p and 90p; the littledifference between assets and price reflected the stock market's lack of enthusiasm.

Since the group's Internet surfing became apparent, the shares have been as high as 127.5p. Theynow reside at 117.5p where, for anything relating to the Internet, they offer the unbelievableadvantage of a handsome and pretty reliable 5.4 per cent dividend yield.

But the Web-inspired advance means they are selling on 27 times last year's earnings; high, but notby Internet standards.

Mr Greenhalgh says the current year should be one of "measured adventure". With public relationstrading slack and the marketing company sold, he may mean a modest profits decline is on thecards.

Still, a fall from a little more than £1m to, say, £900,000 is a small price for reservinga possible Internet spot.

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