No Pain No Gain: Here's proof that we can't please a market when it's in a bad mood

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The Independent Online

It is easy to feel a little sorry for many a company executive in these days of nervous and volatile stock markets. Once or twice a year they journey to the City to present results and no doubt expect to enjoy the plaudits, if appropriate, of a job well done.

It is easy to feel a little sorry for many a company executive in these days of nervous and volatile stock markets. Once or twice a year they journey to the City to present results and no doubt expect to enjoy the plaudits, if appropriate, of a job well done.

Nowadays they may get the odd congratulatory nod, but that is about all. Hopes that robust figures will encourage something more tangible – such as a cheerful stock market response – are long gone. Indeed, as little MacLellan discovered, even the addition of a maiden dividend and an analyst's forecast that current year's profits will more than double is not enough to guarantee a favourable reaction.

I was not at any of last week's presentations. So I was unable to see just how the support services group's chairman, Bob Morton, and its chief executive, John Foley, reacted to the stock market's response, a 4p-a-share fall to 56p, lowest for more than two years.

Maybe, as the late holiday-camp king, Sir Billy Butlin, complained years ago when what he regarded as an outstanding profits performance was given short shrift, they realised it was impossible to please the stock market when it is in a bad mood.

It has, of course, been in an exceedingly bad mood since the turn of the millennium. True, it has lately enjoyed headline-deserving rallies but shares have still lost nearly half their value since we toasted the arrival of 2000. Perversely MacLellan, despite its fine figures, did not recapture even its pre-results level on any of the stock market's more exuberant days.

It is, I think, worth looking in some detail at the company's performance. Turnover rose 52 per cent to nearly £130m and pre-tax profit advanced 31 per cent to £2.6m. Earnings per share were also up, 29 per cent to 2.7p, and gearing was down to 9.3 per cent with interest charges covered no less than 16 times. The maiden dividend is 0.5p a share. The stockbroker Williams de Broe suggests profits this year will be £5.7m and says the shares, on a reasonable rating, are a buy. But nobody was listening.

I am particularly interested in MacLellan's display because I recruited the shares to the no pain, no gain portfolio nearly 18 months ago. I descended on them at 65.5p: they subsequently nudged 100p before sinking to 60p ahead of the results. Then came the slide to 56p. The behaviour of the stock market can, at times, be frustrating, as every investor has experienced. There was very little trading in MacLellan's shares last week and the modest decline, it could be argued, was of little significance. But I would have felt such a splendid display, even allowing for acquisition benefits, would have encouraged at least a modest gain.

The group, once an engineer, offers services, including cleaning and security. It has major contracts with leading UK groups and is thought to be near clinching more lucrative deals. Mr Foley masterminded the switch from engineering to support services; Mr Morton, a serial entrepreneur, is a significant shareholder.

In its transformation MacLellan has completed rewarding takeovers. The last major deal was last year when it acquired the Broadreach group, splashing out £19.3m for the privilege. The acquisition increased its involvement in the retail world. More deals, I suspect, are being lined up.

Galliford Try, another no pain, no gain constituent, has had a rather less successful time. The shares are just above my 20p buying price. If the group had been a "pure" housebuilder, its shares, no doubt, would be putting in a more positive performance (as far as that is possible these days). But Galliford mixed simple housebuilding with more complicated construction work and consequently shareholders have failed to fully enjoy the housing boom.

In the group's first half-year construction losses, including exceptional charges, came to £3.5m, compared with operating profits of £10.5m from housebuilding. The net result was pre-tax interim profits down from £6.6m to £3.6m.

Galliford is struggling to reshape its troublesome construction side and it may solve its problems by the end of the financial year. But construction has often been a drag, and with the housing market starting to give up momentum, group profits are likely to fall well short of last year's £18m, a figure less than impressive.

I intend to hang on to Galliford, and, of course, MacLellan. I feel that Galliford is over the worst, and although I do not see the shares regaining their earlier 40p level, they could, if the stock market does improve, make some modest headway. Although MacLellan is below my buying price there seems every reason to stay attached. I am pleased it joined the dividend list and I would expect its institutional shareholder base to grow as income funds climb aboard.

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