No Pain, No Gain: City gloom casts a shadow over Lighthouse

For months, shares of Lighthouse, the financial management group, held up well, seemingly largely immune from the money crisis rocking the world. The No Pain, No Gain portfolio alighted on them at 17.5p in the summer of 2006. At one time, the price hit 35p; it then suffered a relapse. Even so, as the credit crunch continued to spread despondency, the shares bobbed around the lower 20s, suggesting that the company was performing quite well.

But uninspiring interim profits have demonstrated that even accountants are feeling the pinch. At the pre-tax level, Lighthouse produced £442,000, against £786,000. And the second six months are expected to be even more debilitating, with the stockbroker Shore Capital indicating that profits have disappeared by slashing its year's forecast from £1.5m to just £400,000.

It is not surprising, then, that the shares now reside at a rather uncomfortable 15p, putting the portfolio's holding, for the first time, in the red.

There is no doubt that Lighthouse's fading performance came as a surprise to the stock market. When the group acquired rival Sumus for £12.6m earlier this year, it accompanied the deal with a declaration of record profits. For good measure, the chairman, David Hickey, said he looked forward to reporting "further significant progress".

With near-term prospects so uninviting, there is a clear case for selling the shares. Indeed, I would not attempt to deter any investor from retiring, even if it meant chalking up a loss. But the portfolio, having lost the chance of banking profits, will hang around, if somewhat reluctantly.

Hickey does his best to put a brave face on the setback. He notes that cash balances have increased by 61 per cent to £12.3m, and that funds under advice are up 12 per cent at £6.3bn. He says the "prudent" strategy that has been introduced should "protect original trading expectations for 2009 and beyond". An interim dividend is being paid.

Still, Shore has cut its longer-term profit forecasts substantially. Next year, it anticipates £1.9m, down from £3.2m. For the following 12 months it is on £2.6m (£4.5m). The stockbroker thinks the stock is undervalued. Certainly the shares, even on revised calculations, may appear to be cheap. But I believe that they offer little short-term comfort, though the cash pile compares favourably with a capitalisation of only £19m.

From number crunching to wine making. Interim profits from English Wines Group, the Chapel Down producer, are not exactly sparkling – but neither are they flat. Adjusted pre-tax profits are up 10 per cent to £14,000; the operating loss is £21,000, a slight improvement.

EWG is the portfolio's only Plus representative. The shares were picked up at 20p and, rather like Lighthouse, went on to record a cheerful gain before City gloom cut the price to 17.5p. Still, I regard EWG as very much a long-term investment.

In its last full year, it achieved profits of £86,000 from sales of £2.5m. Interim turnover was up slightly at £1.1m. Internet tipster Tom Winnifrith expects this year's profits to emerge at around £200,000. There are hopes that sales will grow to more than £5m in a few years, giving the only English wine maker with a City share presence a profits ferment in the region of £1m.

Its backers include the serial investor Nigel Wray and the hotelier Richard Balfour-Lynn. Directors have almost 70 per cent of the capital.

The Plus market, of course, could not expect to be immune from the devastation that has occurred on the London Stock Exchange and its junior off-shoot, AIM – though it could be argued that, on the whole, its constituents have performed relatively well. Plus is now quite entangled with shares that are traded on the main market and AIM. It has become an increasingly active alternative to the LSE, particularly on the small-cap front. Its expansion has added to the pressure that the traditional exchange is experiencing from upstart share markets.

LSE shares are well down from their peak, hovering around 800p (providing a £2.2bn capitalisation) against what was a high of near 2,000p. The AIM-traded Plus is also in the doldrums at 7.5p, a modest £22m capitalisation. The five-year high is 39p. In the half-year ending June, Plus lost £2.4m compared with a £3m deficit in the previous full year.

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