No Pain, No Gain: Icelandic wind blows in and cools Booker

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The Independent Online

The Icelandic banking crisis has hit the No Pain, No Gain portfolio. Until a few weeks ago, Booker, the cash and carry group, was one of the few constituents still recording a gain. A splendid set of interim figures seemed to underline the value of the shares.

Then, as the world financial mess became even more alarming, with the implosion of Iceland's banking system creating additional anxiety for many businesses as well as savers, the presence of Kaupthing, one of the distressed Nordic banks, on the share register assumed worrying proportions. In a shuffling of shareholdings in June, Kaupthing emerged with 22 per cent of the capital.

So the shares, earlier hovering around 27p, plunged to 16p, compared with the portfolio's 24.5p buying price. Clearly the stock market felt the cold winds blowing from Iceland would force a fire sale of at least the 22 per cent stake and possibly other shareholdings that could be linked to the Icelandic interests that once controlled Booker. As I write, the price is around 21p. The Kaupthing position has not been resolved, but there are indications the stake will not be dumped although other Icelandic interests could be unloaded.

A company I have not come across before called per centE (sic) investors is now managing the Booker stake as well as a number of other investments previously under the Kaupthing umbrella. It has assured Booker that it "has no present intention" of selling.

Still, until the overhang is cleared, Booker shares are unlikely to receive much sympathy. It's a pity really, as the cash and carry group's half-time profits were up nearly 29 per cent at £26.5m with sales 2.1 per cent higher at £1.5bn. Pressure on independent retailers – Booker's main customers – and the smoking ban, are making life difficult for the group. But it is winning more trade from caterers, expanding its online operations, improving its outlets and growing its Premier retailing spread. In the past year, debt has been cut £18m to £28.9m. Year's profits should top £41m (£36.2m).

Kaupthing became Booker's largest shareholder when another Icelandic group, Baugur, sold out. Baugur, also feeling the pinch, said then that it was giving up wholesaling to concentrate on retailing. Charles Wilson, an ex-Marks & Spencer executive who runs Booker, took the opportunity to increase his holding to 8.3 per cent and institutional investors acquired 20 per cent of the capital.

Whitbread, the budget hotel to coffee shop group, is another constituent to give ground. Again, there are Icelandic connections. It is rumoured that serial investor Robert Tchenguiz, who has close links with Kaupthing, sold his 3 per cent interest, no doubt dampening the share price. Some negative stockbroker comment has also taken its toll. So, too, has chief executive Alan Parker's rather cautious stance.

Tchenguiz, one of the more aggressive investment entrepreneurs, has also been forced to depart from Mitchells & Butlers, the pub chain, and J Sainsbury, the supermarket giant. Whitbread's interim profits were impressive. Excluding the return on the sale of the David Lloyd fitness clubs, they were up 24 per cent at £123.3m and sales 12.6 per cent higher at £682.2m. Year's profits should exceed £230m (£210.3m).

Whitbread is well placed to withstand the worst of the recession. Its budget hotels are likely to enjoy any fallout from upmarket rivals and its restaurants and coffee shops are sufficiently low ticket to prosper at a time of consumer restraint. The shares are around 870p against a 1,105p-buying price.

Although their shares have lost ground, I do not regret recruiting either Booker or Whitbread to the portfolio. The two have suffered from non-trading influences. In these desperate days, there is much to be said for descending on solid companies that should at least hold their own during the recession and prosper as conditions improve.

Finally, a former constituent – Prezzo. Last month, I discussed the restaurant chain's poor share performance. As other interested parties and I suspected, the credit crunch scuppered a proposed directors' buy out. But the company is taking action that could bolster its ailing shares. It plans to buy in up to 15 per cent of its capital. Such manoeuvres do not always lift the price, but Prezzo's feeding time could offer shareholders a little comfort.

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