No Pain, No Gain: A good investment that deserves to be savoured

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The Independent Online

So, I am in two minds about Merrydown's surprise decision to abandon production.

So, I am in two minds about Merrydown's surprise decision to abandon production. The adult soft drink and cider group, a star of the No Pain, No Gain portfolio, caught its followers on the hop last week when it announced plans to cease manufacturing at its Horam, East Sussex, unit and concentrate on marketing. Soon all labels, ranging from the highly successful Shloer soft drinks to the renowned Vintage Cider, will be made by what are described as "well-established sub-contract manufacturers".

This quite stunning switch was well received in the stock market, with the shares gaining 5p to 94p. Although they have been above 100p, in these flat days for investors they are holding up better than many.

And there can be little doubt that, on the surface at least, there is much to commend the new strategy. Restructuring costs of around £2.5m will be more than offset by a £3.75m inflow, largely from property sales. And there is already talk that profit forecasts should be increased.

But, at the risk of being the dismal jimmy at the celebratory party, I offer a small glass of caution. Financially, the Merrydown board, which has no doubt thought long and hard about ending production, has produced an irresistible case in support of the change.

As an admirer of the directors' remarkable marketing skills, which have transformed the group and made Shloer into the nation's number one adult soft drink, I hope their bravery is rewarded. But I would point out that uprooting a product from its traditional home is fraught with danger. In a changed environment, even sophisticated production facilities are often unable to replicate to the satisfaction of its followers something as complex and delicate as a traditional alcoholic drink.

Many beer lovers would argue that Bass, once head and shoulders above the rest of the nation's draught bitters, has never recovered from being re-sited. More recently, the brewing of Brakspear's bitters was switched from Oxfordshire to Cheshire. The resultant brew, splendid in its own way, left many tastes unsatisfied. Brakspear is now back home in Oxfordshire.

I don't imagine it will be too difficult to repeat the Shloer taste. After all, it is merely a rather deliciously flavoured fizzy drink. But I worry about Merrydown's Vintage Cider. It is distinctive and unique, far removed from the factory ciders that now clutter the industry. I remember one eminent fund manager who never strayed from his beloved bottles of Vintage in that once-famed haunt of City souls, the old Long Room in Throgmorton Street. Rather disturbingly, it is losing its home (and old-fashioned vats) at a time when its sales are displaying a healthy thirst - up 10 per cent last year.

The annual shareholders' meeting, once a legendary day out at Horam for City men, is due next week. As befits these more strait-laced days, it is now held at a solicitor's office in the City. The announcement about the production shutdown came about a week after the yearly report dropped on shareholders' doormats. Odd timing. So the meeting will provide the first opportunity for the chairman, Andrew Nash, to discuss with shareholders what is, after all, a staggering development.

Merrydown remains a star of my portfolio but I have dumped a former high-flyer, Glisten, the confectionery group. I did so with some reluctance. I have, however, been disturbed by the recent sharp decline.

Last month I said I would sell if the shares fell below 220p. Last week they hit 217.5p, down from 293.5p a few months ago. One of the group's early backers has been bailing out. The trouble is, there seems to be little appetite for the unwanted shares. So, worried that my profit may melt away, I unloaded. The shares, however, have proved a sound investment. The portfolio acquired them 15 months ago at 114p - a 106p profit has therefore been booked.

I am not convinced I have made the right decision. Glisten is a fine company and the shares could recover from their present indigestion. The group plans to grow through acquisitions and could become a powerful force in the confectionery industry. It appears to be using a successful formula developed by a former No Pain, No Gain constituent, Inter Link Foods, which is being successfully baked into a leading cake and pastry group. Last week it produced profits of £3.9m, up from £3m the year before.

The shares have performed relatively well since I sold them. So, if the Inter Link performance is anything to go by, I have been too hasty. Still, as old stock market heads never tire of saying, it is never wrong to take a profit.

Next week I will review the portfolio, now down again to the uncomfortable level of 13 constituents. With luck, I will soon rope in a new recruit.

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