No Pain, No Gain: Domestic services company is likely to clean up
Saturday 26 March 2005
One of the City's best-known share tipsters is behind a new AIM vehicle that, as an "active capital investor", intends to take stakes in small companies.
One of the City's best-known share tipsters is behind a new AIM vehicle that, as an "active capital investor", intends to take stakes in small companies. Mark Watson-Mitchell is a flamboyant character. He has spent a lifetime in the investment industry and is an acknowledged expert on the stockmarket undercard.
Addworth, where he is executive chairman, slipped almost unnoticed onto the junior market last month. It has so far announced three share transactions, although, I gather, it has a crowded pipeline of potential deals.
The company's first buy came shortly after it arrived on AIM. It splashed out nearly £60,000 acquiring a 5.5 per cent shareholding in an Ofex-traded operation, Myhome International. I am contemplating adding the home cleaning enterprise to the No Pain, No Gain portfolio. So it could be argued that two tipsters were prepared to sweep with the same broom.
In the past, the portfolio has enjoyed considerable success with its Ofex excursions. Montana, a restaurant chain, was taken over at a handsome profit and Printing.com, the high-tech printer, graduated to AIM and is justifying my faith. So, I pondered, another Ofex recruit would not be amiss.
Last week I alighted on Goals Soccer Centres to replace the departing Merrydown. Myhome could, I reasoned, succeed MacLellan, the support services group. At the time of writing, MacLellan was deep in merger talks. The theory was it would fall to rival support group Spice for about 100p a share. Well, as if to reinforce the old saying that there is many a slip 'twixt cup and lip, the MacLellan deal fell through. The rather somnolent shares will, for the time being, remain in the portfolio, although year's figures this week were subdued. Still, now MacLellan has shown it is prepared to negotiate, there must be a chance other predators are circling.
I do, however, have room for more recruits and Myhome is certainly a fascinating candidate. It was part of a cleaning business created in the 1990s by Unilever, and the detergent and food behemoth still has a more than 5 per cent legacy shareholding. Following a change of regime, Unilever foolishly abandoned many of its minor activities and Russell O'Connell, who is Myhome's chief executive, acquired the home cleaning division through his company, then called Chores.
The enlarged group arrived on Ofex three years ago. Profits have proved elusive, although Unilever had apparently dreamed about a possible yearly turnover of £150m.
A switch to franchising seems to have provided the key to success. In the first quarter of its current year Myhome broke into profit - achieving a modest £33,000. Watson-Mitchell, who has lifted his interest to 6 per cent, is looking for £200,000, perhaps £250,000, this year and "a very significant" advance next year.
If he is right, Myhome shares look, as he says, "massively undervalued" at 8.25p, capitalising the business at £1.6m. There are currently 19 franchise operations and chairman Simon McNeill-Ritchie expects about 30 to be operating by the end of September.
The idea is to provide a full cleaning service for "cash-rich, time-poor" households. Besides cleaning and dusting, washing, ironing, dry-cleaning and other facilities are being offered. Franchisees may or may not have to get involved in the nitty-gritty of cleaning. Their role should be largely supervisory. Myhome's early franchises were in the South-east, but it is spreading its network into the North and may start to clean up in Scotland soon. I believe its shares will be elevated to AIM in the next few months.
Addworth's other announced investment is a 4.15 per cent stake in a company due to hit AIM next month. Intandem Films is headed by Gary Smith, who used to run Winchester Entertainments (now ContentFilm). It is also deeply involved in Branded Entertainments, a DVD business that is also expected to float on AIM in April; another possible debutante is Yellowcake, a uranium business. E-Retail, a vehicle for John Morgan and Quentin Griffiths, is also on its way to Domestic market. They were involved in ASOS, the internet clothing retailer that was the share star of last year. Indeed, the shares represent a tipster's dream. Watson-Mitchell recommended them at 5.5p; they soared to about 85p; and even after a drab trading statement, they are still nudging 60p.
Watson-Mitchell, who is 58, has witnessed City life from many angles. He tried his hand at corporate raiding, building significant stakes in at least two quoted companies in the 1970s. The calls of stockbroking, researching, publishing and old-fashioned City hackery have also touched him.
For Addworth, which sees its major role as advising small companies, he collected experienced investors - including Australian mining entrepreneur Bruce Rowan - who were prepared to back his share-tipping skills. The shares, floated at 5p, are now 5.75p.
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