No Pain, No Gain: Lighthouse guides the course to more profits

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The Independent Online

Every so often, a little-known company strikes what looks like a transformational deal. Lighthouse, the financial services group recruited to the No Pain, No Gain portfolio in August last year, could have achieved such a transaction in linking with the giant friendly society, Liverpool Victoria.

The shares, recruited at 17.5p, appear to be in no doubt that the outlook is now much brighter. They have jumped to 30p, the best level for a long time.

As part of this intriguing "sweetheart deal", LV becomes a near-10 per cent shareholder in Lighthouse, which in turn obtains access to the mutual group's members, customers and affiliates, including 10 trade unions with some five million members. LV's independent financial advisers are switching to Lighthouse, bringing with them revenues of some £1m a year.

I was a shade disappointed with the financial group's last figures - a loss of £214,000 - but it should be comfortably in the black this year. Indeed, following the link with LV, researcher Hardman & Co has sharply increased its forecasts. It is now looking for a current year's profit not far short of £3m (against the earlier estimate of £1.7m) from a turnover of £49m. For next year, it suggests sales of £53m and a profit of £3.48m.

The company is restructuring its balance sheet to make dividend payments possible, and Hardman predicts a maiden dividend of 0.75p a share in 2008.

Although Lighthouse's greatly improved outlook underpins the shares, there is also a growing possibility of takeover action. The arrival of Britain's largest friendly society on the share register will do nothing to weaken bid hopes.

Indeed, there are rumours that the Financial Services Authority is thinking of tinkering with the current system of distributing financial products. If it should do so, it could make Lighthouse an attractive proposition to some of the money industry's big names, including LV.

Private & Commercial Finance, my most recent recruit, has demonstrated that it has put the bad old days behind it. It made a modest profit of £46,000 last year. At the halfway stage, it was £56,000 in the red, and in the previous year it chalked up a loss of £3.8m. The shares are 23p against my 19.5p buying price.

P&C has changed its financial year-end from December to March. Such a move should cut costs. As part of the process, it has had to undertake a 15-month accounting period, which ended last month. With trading seemingly going quite well, there are hopes it could produce a reasonable profit over the 15 months, although estimates of £400,000 may be a little too rich. For the year that has just started, profit forecasts stretch to £1.5m.

The group, mainly known for car hire-purchase but also deeply involved in plant and equipment hire, is slowly expanding its operations. For example, it has set up a corporate finance department and is venturing into loans for home improvements.

Although last year's profit was little more than a lick of paint on what has been a dismal picture, there is no doubt that there is a new air of confidence at P&C. Don't forget that, in a three-year period, what is a relatively small business logged losses of more than £8m. Against such a backdrop, any profit must be regarded as encouraging. Last year's turnover, in what looks to have been a difficult market, was outstanding, up 23 per cent to a record £56m.

Finally, La Tasca. When I commented on the bid action last week, the shares traded a little above the Robert Tchenguiz offer. I suppose faint hopes were lingering that another bidder could appear. Or, perhaps, the shares just got ahead of events.

At one time, the Tchenguiz camp indicated that it would be prepared to settle for control with some of the restaurant chain's shares remaining on the Alternative Investment Market (AIM). I do not know if such a possibility still exists, but if it does the portfolio is unlikely to be tempted to stick around. It will almost certainly accept what is an admittedly miserly 200p a share offer.

This means that, after ditching Stagecoach, I am on the look-out for at least two recruits. It will be difficult to find another restaurant chain - the buccaneers of the private equity brigade are swallowing everything in sight.

cash@independent.co.uk

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