No Pain No Gain: For the Footsie, the only way is up, to 5000 by the year-end

I am encouraged by the recent performance of the stock market. Although the no pain, no gain portfolio remains modestly in the red, I am hopeful it will soon be back in profit. After the absurdly low levels hit last month, Footsie should not have too much trouble climbing above 4000 points.

I am encouraged by the recent performance of the stock market. Although the no pain, no gain portfolio remains modestly in the red, I am hopeful it will soon be back in profit. After the absurdly low levels hit last month, Footsie should not have too much trouble climbing above 4000 points.

Problems still abound in Iraq but a great deal of uncertainty, which is responsible for much of the stock market's dramatic decline, is now out of the way. The terrorism threat and economic worries will continue to inhibit bullish sentiment. But, I venture to suggest, a Footsie level of around 5000 could be attainable by the year-end. Perhaps some of the doom and gloom forecasts that have swirled around will now be consigned to the dustbin, where they so obviously belong.

The portfolio embraces a couple of basket cases, but overall it consists of sound investments that should prosper as a less hysterical, more relaxed atmosphere develops.

Last week two long-standing small-cap members sent out rather mixed messages with Merrydown, the cider and soft drink group, continuing to make headway but the door-to-door credit group, S&U, suffering a profits reverse after a fraud at one of its branches.

Although renowned for its strong cider, Merrydown now relies heavily on an adult range of soft drinks sold under the Shlöer name. Its cider operation, although profitable, seems to be doing little more than ticking over, with Shlöer capturing much of the management's attention. Mind you, the decision to concentrate on the soft drinks market, and in particular the sophisticated adult segment, has proved a wise one.

A few years ago, Merrydown, not for the first time, was on its knees. New management, led by the chairman, Andrew Nash, and the chief executive, Nigel Freer, was drafted in and a £6m rescue rights issue launched. The cash call encouraged Britain's oldest brewer, Shepherd Neame, and SHS, an unquoted food and drink distributor, to climb aboard. Shepherd picked up 4.2 per cent and SHS 6.3 per cent.

The cider market, with volume flat and margins suffering a brutal squeeze, offered little encouragement for a small player such as Merrydown. So Messrs Nash and Freer developed a taste for soft drinks. Sales have advanced impressively in their short reign. Shlöer had record Christmas sales and again achieved double-digit growth in the year just ended.

So Merrydown, launched in 1945 by three former Servicemen who decided to utilise the fermenting skills developed in prisoner-of-war camps, should roll out year's profits of £1.3m against £800,000. The shares are highly rated, but with justification. There is evidence of increased institutional support and SHS could nurse predatory instincts: it has increased its stake to 10.47 per cent.

Despite its profits setback, S&U lifted its dividend to 28p a share for the year, underlining its yield attractions. After a sharp increase in bad debt provisions, up to £6.7m from £4.3m, pre-tax profits fell to £7.85m against £9.2m. Aside from the fraud in its London branch, the group traded well in the rest of the country. Its car-finance side also prospered. The London setback destroyed what was an impressive profits display in the past few years. If, as seems likely, the group is firing on all cylinders this year profits should reach £10m, a performance once pencilled in for last year.

I have written at length about Profile Media. A share tip showing a 98 per cent loss is obviously humiliating. The group has reported an increased interim loss of £4.6m (£3.6m). Clearly, it is still finding life tough, but deputy chairman David Ellingham has added modestly to his shareholding, which should be encouraging. And its debts, although large, look manageable.

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