No Pain, No Gain: ChipsAway adds polish to Myhome's resilience

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The Independent Online

Shares of Myhome International, the stars of the No Pain, No Gain portfolio, have lost a little of their exuberance in the past two months. A substantial placing and worries that the credit crunch could embarrass some of the group's "cash rich, time poor" customers are largely responsible for the unexpected bout of uncertainty.

The placing was part of a £16m fundraising exercise to accommodate the acquisition of a business called ChipsAway, a franchise operation offering minor car-damage repairs and a vehicle valeting service. The deal lifts Myhome's network to a dozen brands and more than 800 franchisees – making it the largest player in what has become a growing and rewarding method of trading.

The credit squeeze has so far had no impact. Indeed, chairman Russell O'Connell says like-for-like sales are running some 30 per cent higher than a year ago. He will achieve profits of about £1.9m in the year just ended, and paid-for researcher Equity Development (ED) expects nearly £5.9m in the current year.

Despite recent hesitancy, the shares have enjoyed astonishing buoyancy since the portfolio alighted on them at 15.5p in the summer of 2005. They have topped 100p and, as I write, are 81p. Clearly, then, there must be a temptation to lock in profits. Any investor who followed the portfolio into the shares should, I believe, consider selling at least half of the holding. Staying in for a free ride can be enjoyable.

The portfolio's rules of engagement prevent such a manoeuvre. However, it is, at the moment, happy to stick with the shares. Andy Edmond, the ED analyst, reckons they are worth 147p, and another researcher, Growth Equities & Company Research, has a 133p target. Based on the profit forecasts flying around, Myhome shares are not expensive. On last year's in-the-bag forecast they sell at 27 times earnings, dropping to 12.7 on this year's estimate. Debt is only £5m and a maiden dividend is signalled for next year.

Of course, a company growing so rapidly, both organically and through acquisitions, can always come a cropper. But O'Connell and his team have yet to put a foot wrong and their record suggests that, despite the weight of four deals this year, the additions should be comfortably integrated.

Even so, I understand that Myhome has called a halt to its takeover programme. A period of consolidation has been decreed while it beds in its spread of activities, ranging over such areas as home cleaning, gardening and car cleaning.

Besides recruiting new franchisees and developing existing operations, the group believes there is enormous scope for cross-selling and is establishing an online presence, selling such services as financial planning and insurance. Originally a Unilever project, Myhome this year acquired the eponymous website from the detergents and foods behemoth.

ChipsAway, with 400 franchisees in 13 countries, also strengthens Myhome's international ambitions. An American idea, it was launched in this country in 1994 and in Europe two years later. It has yet to reach Australia, where the Myhome residential cleaning franchise has been successfully introduced.

In this country, ChipsAway undertakes about 20,000 minor repairs a week. Franchisees also sell car paraphernalia. Besides alerting ChipsAway customers to other group operations, there is a clear link with Myhome's Autosheen car valeting network.

In the six months ending June, ChipsAway produced profits of £558,000 against £392,000 in the whole of last year. The £16m Myhome has raised for the takeover comprised a bank loan, shares placed at 72p, and investors Nigel Wray and Stephen Hemsley exercising warrants to subscribe for shares at 40p. The Wray shareholding is now 14.75 per cent, with Hemsley accounting for 5.5 per cent. A further £4m will be paid if ChipsAway's performance comes up to scratch in the next two years.

Two portfolio constit-uents have produced updates. The Printing.com franchise chain said that trading was running in line with expectations. It has sold another international licence, this time to a group that dominates the Icelandic print market and has interests in North America, Scandinavia and Eastern Europe.

And Private & Commercial Finance, the hire-purchase group, reports "significant sales growth". Chief executive Tony Nelson says "good quality business with realistic margins" is more than offsetting higher interest rates. The portfolio paid 30p (now 53p) for Printing.com shares and 19.5p (now 24p) for P&C.

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