Mears to keep followers happy

Derek Pain: No Pain, No Gain

Shares of Mears, a little maintenance services group, have enjoyed a splendid run since it reported interim figures at the end of last month. They are now at a peak of 33p. Analyst Roger Brocklebank at the Old Mutual investment group believes there is a case for a price much nearer 50p.

Shares of Mears, a little maintenance services group, have enjoyed a splendid run since it reported interim figures at the end of last month. They are now at a peak of 33p. Analyst Roger Brocklebank at the Old Mutual investment group believes there is a case for a price much nearer 50p.

They arrived in the no pain, no gain portfolio in April at 23p. I must admit I was apprehensive about them and at the last moment almost reversed my decision to include them.

My anxiety stemmed from a sudden surge in the share price. When I examined the company I was impressed by its attitude, management, prospects and record. At the 19p they then stood, I felt, the shares looked an ideal buy.

But the rapid advance to 23p put a different complexion on them. Such a movement by the low-priced share of a small company looked as though I had missed the boat? Luckily, I stayed aboard. And the portfolio is the beneficiary.

When I alighted on Mears it had just produced encouraging figures which, I felt, the stock market had overlooked, as it often does with small companies. An internet tip service apparently came to the same conclusion and its enthusiastic online comments spurred the sudden advance.

Now the Mears half-year figures have underlined the company's undoubted strength. Interim pre-tax profit was £850,000 against £412,000 with the dividend (an often-overlooked factor in modern investment) again increased.

Mr Brocklebank sees year's profit of the AIM-traded group emerging a little below £2m with £2.4m next year. My guess is he is being rather cautious.

Mears is run by Bob Holt, ex-Mitie, the highly successful building services group. It could be argued that Mears closely resembles the much-smaller Mitie of a few years ago. Mr Holt, who is 45, was once chief executive of Tottenham Hotspur and was at Blue Arrow, the controversial recruitment group.

He is keen to expand Mears, and acquisitions, probably in the North, are likely. But with its growing profitability and a strong order book - around £110m - it must look an enticing takeover target. It is thought to have had approaches but talks clearly failed. Some believe it is such a well-run and progressive company that it cannot hope to retain its independence much longer. At the present price it is capitalised at only £16.6m.

A great many successful small companies are, on traditional measurements, undervalued. Mears is no exception. The shares are selling at less than 10 times prospective earnings, roughly half the sector average. A direct comparison with Mitie, probably selling on more than 50 times expected earnings, is unjustified. Even so such a yawning rating gap is too wide.

Another feature in Mears favour is that unlike many small players, it is not shunned by institutional shareholders. Eaglet Investment Trust, admittedly specialising in small companies, has 20.6 per cent. Other declared holdings take the institutional presence to more than 40 per cent. Directors have 20.3 per cent.

The group operates from 30 branches and has extensive links with local and other public authorities. Most of its contracts are long-term.

It is under contract to maintain around 140,000 local authority houses, out of a total of 3.2 million or so. Therefore the potential to win new business on that front is considerable. In fact, Government plans to increase spending on housing and education should ensure Mears continues to prosper.

Certainly it seems, at least on trading grounds, that Mears will be able to keep its followers happy. But the stock market's failure to embrace small companies could inhibit the shares. But they are destined to retain their membership of the no pain, no gain portfolio and even at their present price are still a worthwhile buy.

Dru Edmonston at stockbroker Durlacher is, like Mr Brocklebank, keen on the shares. He thinks they are a buy up to 35p.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    As in 1942, Germany must show restraint over Greece

    As in 1942, Germany must show restraint over Greece

    Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
    Britain's widening poverty gap should be causing outrage at the start of the election campaign

    The short stroll that should be our walk of shame

    Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
    Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

    Homeless Veterans appeal

    The rise of the working poor: when having a job cannot prevent poverty
    Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

    Prince Charles the saviour of the nation?

    A new book highlights concerns about how political he will be when he eventually becomes king
    How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

    How books can defeat Isis

    Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
    Judith Hackitt: The myths of elf 'n' safety

    Judith Hackitt: The myths of elf 'n' safety

    She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
    The open loathing between Barack Obama and Benjamin Netanyahu just got worse

    The open loathing between Obama and Netanyahu just got worse

    The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
    French chefs get 'le huff' as nation slips down global cuisine rankings

    French chefs get 'le huff' as nation slips down global cuisine rankings

    Fury at British best restaurants survey sees French magazine produce a rival list
    Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

    Young carers to make dance debut

    What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
    Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

    Design Council's 70th anniversary

    Four of the most intriguing prototypes from Ones to Watch
    Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

    Dame Harriet Walter interview

    The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
    Art should not be a slave to the ideas driving it

    Art should not be a slave to the ideas driving it

    Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
    Bill Granger recipes: Our chef's winter salads will make you feel energised through February

    Bill Granger's winter salads

    Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
    England vs Wales: Cool head George Ford ready to put out dragon fire

    George Ford: Cool head ready to put out dragon fire

    No 10’s calmness under pressure will be key for England in Cardiff
    Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

    Michael Calvin's Last Word

    Time for Old Firm to put aside bigotry and forge new links