No Pain, No Gain: Goodbye to GallifordTry shares after bumpy ride
Saturday 22 May 2004
It's farewell, then, to
GallifordTry. On Monday shares of the housebuilding and construction group crashed through the 50p barrier - the first trading day following my decision to lift my sell price from 40p to 50p. They collapsed 5.75p to 46.5p in remarkably heavy trading.
It's farewell, then, to GallifordTry. On Monday shares of the housebuilding and construction group crashed through the 50p barrier - the first trading day following my decision to lift my sell price from 40p to 50p. They collapsed 5.75p to 46.5p in remarkably heavy trading.
So the no pain, no gain portfolio's only option was to dump the shares once 50p was hit. They have been a profitable investment, but I must admit to nursing doubts about their continuing buoyancy. That was why I set a sell level on the stock. It is not a procedure I normally adopt. I feel it smacks too much of the stop-loss system, which is far too inflexible and often results in the unnecessary sacrifice of future profits. Still, in this case, I felt it advisable to ensure I was not caught between columns by a sudden slump and, therefore, unable to take prompt action.
I have no regret about locking in the Galliford profit. The shares were one of my early constituents, arriving in May, 1999, a few months after the portfolio was launched. I paid 20p for them, so a 30p gain is a reasonable outcome. As is to be expected over a five-year period, it has often been a bumpy ride. On a couple of occasions the shares fell below my buying price, causing some anxiety. And the trading performance has not always been scintillating. Galliford's construction arm suffered a wounding setback and although it is now recovering in some style, its difficulties distracted from the successful housing operations. Shorn of the construction activities, the shares would have joined even more fully in the remarkable boom most other housebuilders have enjoyed on the back of soaring house prices. At one time there was vague talk of a demerger. There has also been a little take-over action. Rok Property Solutions made approaches, promising a 54p cash and shares offer, but its overtures were rebuffed.
It is not, as I write, clear why Galliford's shares had such a poor session on Monday, in general a weak day for the stock market. It could have been a delayed reaction to an investment presentation the group made in the previous week. Perhaps a fund manager felt the shares had little immediate mileage left in them, or some analysts may have reduced their profit forecasts. Still, profits of around £22m for the current year still seems to be the general target. At the halfway stage the group recorded £9.6m pre-tax.
Galliford's departure makes little difference to the portfolio's overall financial performance, which I discussed last week. It does, however, reduce to 14 the number of constituents. Such a membership list is a little lightweight and I will increase my efforts to discover more suitable candidates. I am still pondering the possibility of recruiting Urbium, the chain of trendy bars which is undoubtedly one of the best-run operations of its type in the country. It seems to be causing something of a stir with the success of its new outlets in the City, an area not renowned for its late-night hospitality. Hitherto the investment community has usually decamped to London's West End for nocturnal drinking.
Wyatt, one of my lossmakers, was also quick off the mark after last week's column. The chairman, Bob Holt, who created the highly successful Mears facilities management group, announced the first of the deals I (and others) suspected he had in the pipeline. A company called Premier Employment Services has been acquired at a modest initial cost of £40,000. But there is also a £2m possible earn-out. The structure of the deal makes it clear that in Mr Holt's opinion Premier's current performance is an irrelevance - it is actually lossmaking - and it is all about tomorrow's display. The deferred payment, providing targets are met, will be in shares, although in certain circumstances the vendors will have to be content with old-fashioned cash.
Mr Holt's successful development of Mears was the sole reason I alighted on Wyatt. He has entered a little-explored corner of the commercial world, and is building what could become a significant player. Whereas the growth at Mears has been largely achieved from within, Wyatt is an acquisitive vehicle. It is set to announce further deals in the months ahead.
The shares have so far proved a disappointment, at 20.5p against my 27.5p buying price. But I am prepared to be patient. And, just to underline my doubts about the stop-loss system, I have no pre-conceived selling price.
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