No Pain No Gain - Hungry bakery group is a tasty morsel

By Derek Pain

The short stock market life of Inter Link Foods, producing such delicacies as Bakewell tarts and swiss rolls, has made enjoyable progress. Profits, due in a few weeks, are likely to be double the previous year's figures and the shares are standing just below 200p against a 110p placing price.

The company arrived on the junior Alternative Investment Market in August, 1998, raising £2.1m. It was created four years earlier when Crossfield Foods, a bakery at Blackburn, was taken out of the Yorkshire Food Group then the Lisa Bakery of Oldham was acquired. The company, building a major bakery operation, has also gobbled up Maid Marian Bakeries, making celebration cakes and biscuits, and taken an option to buy cakemaker William Lusty. It is clearly hungry for expansion and its growing power should allow it to increase its trading with its supermarket customers which include Asda and Tesco.

Inter Link has already achieved an impressive fan club for a small AIM group - capitalisation being less than £10m. Institutions, such as Friends Ivory & Sime and ventures associated with merchant banker Close Brothers, account for more than 21 per cent of the shares and shrewd old trooper Jim Slater has 3.1 per cent.

The shares, although a narrow market, have remained resilient despite persistent selling by one major shareholder who unloaded 1.5 per cent of the capital. Inter Link has made confident trading noises and Peter Cooper, an analyst at stockbroker Wise Speke, is looking for pretax profits of £1.1m in the year ended last month, compared with £560,000 the previous year, and is forecasting £1.6m this year.

The shares are selling at less than 12 times last year's prospective earnings, a rating that leaves plenty of scope for headway. But, as befits a growing young company, the yield on the projected dividend is low, at only 1.6 per cent. So readers seeking an income share should look elsewhere.

Inter Link is the sort of small, ambitious company that deserves a place in the no pain, no gain portfolio, which already embraces Global, another food producer. Global has just enhanced its prospects by selling its forklift truck off-shoot for £8.3m. The sale terms are not generous, but analysts John Elston and Charles Hall at stockbroker WestLB Panmure, are sticking with their £8.8m profits forecast for this year.

The deal reduces Global's borrowings by more than £10m and should leave year-end debt down from £39m to £21m. But the group is anxious to expand and I would not be surprised if it alights on another acquisition, pushing borrowings back up. Its last deal was the £22.4m takeover of Sims Food Group.

Shares of Mears, a provider of building maintenance services, recruited to the portfolio five weeks ago at 23p, have fallen to 19.5p, putting them on less than eight times prospective earnings. The selling by Martin O'Halloran, who has resigned as a director, was picked up by Eaglet Investment Trust, which now has a 20.6 per cent interest. Last year Mears had profits of £1m and looks set to nudge £2m this year. The order book is in excess of £100m. Next year's profits forecast is £2.4m.

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