No Pain, No Gain: Much pain, few gains after relentless hammering

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The Independent Online

It's been a bruising few months for the No Pain, No Gain portfolio. Profits have again been whittled away as the onslaught on the stock-market undercard has continued.

I am anxious to enlist recruits. The portfolio, following the re-selection of Myhome International, is now a dozen strong. The ideal strength is 15 or 16. I have lined up a number of possible newcomers, but in the current climate of fear, with already cheap shares likely to be even cheaper tomorrow, there is no rush to buy.

The mauling some shares have received is quite astonishing. I have suffered like any other investor who is enthralled by micro-caps. In the main, resource shares have at least held their own. But most of the rest of the herd, particularly those that could suffer from any cutbacks in consumer spending, have been hammered unmercifully.

Of course, not all can blame the general malaise for their performance. Rentokil Initial, one of my two main-line constituents, has suffered a disastrous trading setback and may well have to seek the salvation of a break-up. I have been worrying about the shares for some time. I suppose the most realistic action would be to sell without further ado. However, I am hanging on for a little longer to see whether corporate action offers any comfort.

The portfolio's other top-line player, Scottish & Newcastle, remains in a takeover ferment as Carlsberg and Heineken continue their unhurried acquisition process. Hopes of a counterbid, probably from Anheuser-Busch, are fading, although such a bid remains a possibility.

Even if a rival strike fails to materialise, the portfolio has doubled its Scottish money. As I said recently, the agreed 800p-a-share offer would almost certainly have been forced higher if world stock markets had been calmer. Volatility made it difficult for the defending board to extract that little bit extra. Some interested souls thought that something over 900p – even 950p – would have been a more palatable price. My view? Around 850p would have been top dollar.

Food & Drink Group, running the Jamie's and Henry J Bean bar chains, is another constituent causing me unrelenting grief. Profits, which appeared some weeks later than originally indicated, only served to underline the merits of that old City saying – "delay means dismay". They were deeply disappointing, falling well short of earlier expectations. Chairman Stephen Thomas (who also heads the Luminar nightclub chain) described FDG, somewhat surprisingly, as "sub-scale" and is looking round for a deal with another group.

The portfolio, for the first time for some years, looks rather forlorn. Gains and losses are split evenly. I am concerned that most stocks that remain in the black have lost much of their exuberance. For example, Hargreaves Services and, although they are comfortably in profit, are well below their peaks. Both have produced encouraging trading statements since my last portfolio update in December.

For no apparent reason other than the stock-market slide, English Wines Group, my only Plus constituent, and Private & Commercial Finance have both lost ground.

Nighthawk Energy has been the best performer in recent weeks, climbing to new highs. The group is continuing its American adventure in some style. Last month, it disclosed further progress in developing its Devon field in Kansas. It is estimated that the site holds more than 10 million barrels of oil. The group has also increased its landbank at its Cisco Springs, Utah, play.

Since its launch nine years ago, the portfolio has enjoyed some strong successes. There have also been disasters. In the summer of last year, it was handsomely in the money, recording a £143,000 profit. It's had a torrid time since then, with the gain sinking to £91,000.

I was forced to sell three star performers that dipped below their reserve prices. Goals Soccer Centres was sold at 300p against a 444p high and a 125.5p buying price; Myhome went for 50p (106p and 15.5p) and Prezzo left at 60p (93.75p and 17.25p). GSC hovers around the 300p mark, but Myhome and Prezzo have given further ground.

Myhome, the residential cleaning and car support franchise group, was revisited at 27p. The decline in the shares since they rejoined is worrying. The group is now horribly out of favour in the stock market after lower-than-expected profits and sharply reduced expectations for this year.

Still, if it achieves this year's revised £3.6m profit estimate, the shares are selling at around five times forecast profits. That makes them attractive. The trouble is that, if the share slide is any guide, there must be many investors questioning Myhome's ability to achieve even the much-reduced expectations.

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