No Pain No Gain: Farewell to an old friend, but we're still ahead


The no pain, no gain portfolio has been forced to sell the shares of Hargreaves Services, the coal-to-transport group, following their fall to 700p last week. Earlier this year, the price comfortably exceeded 1,200p and I was happily congratulating myself on picking such an outstanding stock. Then came a profits warning – and many shareholders watched miserably as their rewards evaporated.

It is, however, with a degree of sadness that I have ended Hargreaves role. After all, it is the longest-serving constituent, having been recruited more than five years ago at 417p. But after the group surprised – even shocked – the stock market with a downbeat trading bulletin earlier this year I warned that, to preserve at least some of the portfolio's dwindling profits, I would sell the shares if they hit 700p, With the price slumping to 675p, I had to deliver on my promise. This week Hargreaves produced year's pre-tax profits up 16.8 per cent to £43.1m with a 14.8 per cent dividend increase to 17.8p a share..

The profit warning, however, related to the group's Maltby coal mine in South Yorkshire. Its problems had little impact on the figures just announced but will damage the current year's out-turn. There is even the possibility the mine will be mothballed or closed. With Hargreaves regarded as a glamour stock such difficulties – no matter how well they are handled – produce a savage investment reaction. The stock market, it is often said, does not take prisoners. Clearly the Hargreaves crash is another example of the relevance of this battle-scarred observation.

Still, I may not wave a final farewell. Before the Maltby problems emerged, some City analysts were predicting the shares could go on to hit 1,500p. In view of Hargreaves' then-impeccable profits performance, such thoughts were realistic. So, if I get the impression the group is set to recapture its old exuberance, I will think about re-recruiting the shares.

Until Maltby's problems emerged, the management had covered itself in glory and there is no reason to suspect the group will not recover from a rather humiliating reversal of fortunes.At one time, Hargreaves rivalled Booker, the cash and carry chain, as the portfolio's most profitable investment. But Booker has had the field to itself, with Whitbread, the leisure group, taking second spot as its shares more than doubled.

Booker continues to thrive. A half-time trading statement indicated that sales had advanced 3.3 per cent with a sharper increase recorded in the second quarter. Cash in the bank grew from £59m a year ago to £70m. Of course, the hurdle facing the group is Makro, the loss-making cash and carry chain, acquired earlier this year in a £140m deal.

The Office of Fair Trading has still to pronounce on the get-together and, consequently, Makro's performance is not consolidated. Chief executive Charles Wilson describes trading at the former German owned business as "challenging" and it has already been indicated that it could be a short-term drag on Booker's progress.

The shares have been in fine form recently, although there is just a hint the interim trading statement has reminded some investors about the problems at Makro. The shares had reached 98p – and, I suspect, many were waiting for the magic 100p to be breached – but there is, as I write, a shade less exuberance around the stock. Still at 94p, the portfolio is recording a handsome gain from the 24.5p paid in January, 2009. As I have pointed out in the past any investor who followed the portfolio into the shares should consider selling at least half their holding, thereby locking in a profit and enjoying a free ride with the remaining stake.

But enough harping on success. The portfolio has suffered some savage losses that have restricted overall profits. Even so, a package of shares offers investors a degree of protection against the ups and downs the stock market frequently endures. In the portfolio's 13½ years' existence, there have been some appalling losses, yet it is comfortably in profit.

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