No Pain, No Gain: I had a bad feeling about Myhome, now I know why

Derek Pain
Saturday 02 August 2008 00:00 BST
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Well, I should have sold Myhome International after all. I was on the verge of dumping the shares last month, but conversations with the franchise group's top brass prompted a change of mind – and I held on to them.

Just a few weeks after my talks, Myhome said it had broken some of its banking covenants and may undertake a cash call. Although we had discussed bank loans, there was no mention of any problems.

I feel badly let down – and I suspect most other shareholders do as well. The shares, as I write, are 5.5p after hitting 3.25p. They were 9.75p when I decided to retain them in the No Pain, No Gain portfolio. So; what to do now?

I would not attempt to dissuade any investor from calling time on the company. I said last month that the shares represented dead money for at least a year. Such a prediction now seems too charitable. With the group's banking difficulties, and a rights issue likely, the shares offer little comfort to any investor who splashed out when the shares were higher.

Until the £16m acquisition of ChipsAway, a car-repair franchise group, in November, Myhome was debt-free. But the takeover required an £8m loan from Lloyds TSB. With the group's capitalisation down to £3.5m it is, perhaps, not surprising that there is some banking anxiety.

My dilemma is, once again, whether the portfolio should sell or (once again) stick around. Selling would mean a £4,000 hit. And I find losses hard to tolerate. Still, I think I would sell – but for three factors.

The first is that Myhome has some influential shareholders, including Nigel Wray, Bruce Rowan, Stephen Hemsley and Mark Slater (son of the legendary Jim). It is in their interests to continue to back the group. Indeed, Rowan's Starvest investment vehicle increased its stake a few days before the banking bombshell. Also, the group seems to be trading reasonably well – if below earlier expectations.

Finally, the portfolio is still in the money. Three years ago, it purchased shares at 15.5p, selling at 50p. Discounting any return from its present investment, the portfolio is still more than £6,000 to the good.

Past success, I realise, should not influence current investment decisions. But with so much of my second round in Myhome already down the drain, there seems little point in cutting and crystallising a loss at this stage.

As if to confirm that, like the proverbial No 9 bus, reverses never arrive one at a time, the portfolio has also suffered another severe hit from Rentokil Initial, the pest control to washroom group. On this occasion, I am not hanging around. The portfolio paid 143p a share; they are now 66p and I have had enough after four profit warnings.

Despite new and impressive management, a long, hard slog looms and the cut-and-run argument seems overwhelming. I have stuck with the shares for far too long. Although I think the new three-strong team will eventually succeed in pulling Rentokil around, I have grown tired of waiting and have sold while there is still a reasonable sum to bank.

Rentokil's unexpected departure reduces the portfolio strength to 12 – allowing a quick escape from the unlucky 13 level, which followed last week's arrival of Whitbread. I am, however, still on the lookout for new recruits.

After so much gloom, it is refreshing to be able to end on a cheerful note. Mears, the support services group, has clinched two more social housing contracts. It has won deals in London and the Midlands worth £170m. In the past five months, it has successfully tendered for new business worth £340m, lifting its order book to £1.6bn. More contracts are likely. The chairman, Bob Holt, says: "We are confident of further tender success in the near future."

The portfolio descended on Mears in March at 272p. The shares are now 281p. Since joining, they have topped 320p, but healthcare worries seem to have taken their toll. Two groups produced indifferent displays, wounding the entire sector.

Although there is no evidence that Mears's domiciliary care side has faltered, the shares have been infected by the general health downturn. The stock market's treatment, further evidence of today's jittery atmosphere, overlooks the prospect that Mears's profits this year are set to top £20m (against £15.5m).

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