Many companies are facing acute difficulties, and the transatlantic mortgage bail-out will not have any near-term impact. The trading environment continues to deteriorate as the still-ferocious credit crunch exerts pressure. With their limited resources, small-caps are particularly vulnerable in such brutal conditions.
With sales and funding under attack, sympathy is in short supply and the weak perish. Mistakes are not tolerated in such a hostile climate and guilty firms are treated harshly.
The No Pain, No Gain portfolio has suffered acute embarrassment, with constituents feeling the bitter impact of the crunch. In some cases, mistakes have compounded their difficulties.
Last week's distressing suspension of shares of Myhome International, the franchise group, is the latest disaster to hit the portfolio. The credit crisis could be an influence, but there is little doubt that the company made some fundamental errors.
The portfolio descended on the group in July 2005 at 15.5p a share. It sold at 50p. In the meantime, the price hit 106p with Myhome, then attracting enthusiastic City support, successfully placing shares at 85p and 72p. The portfolio foolishly returned at 27p. Share trading was halted at 5p. Administrators quickly arrived.
Investors who followed the portfolio first time round were in the money, but any who ventured in at 27p face annihilation. I apologise for their financial discomfort. Overall, the portfolio escaped with a £6,000 profit.
A takeover spree and management losing focus at a crucial time seem to be largely responsible for the crash. But the part played by Lloyds TSB requires some explanation.
Last year, to help the rush to expand, the franchise group borrowed £8m from Lloyds. In July, to the accompaniment of a mildly encouraging trading statement, it emerged, to the surprise of many, that some banking restrictions had been broken and Lloyds wanted the loan reduced. Then, two weeks ago, it was said that a potential investor was in talks to replace the loan and take an equity stake. Last week came the bombshell. Lloyds demanded immediate repayment; it must have known Myhome hadn't a cat's chance in hell of complying.
Why did the bank act so controversially? On the surface, it seems to have destroyed any hope of recapturing its £8m. And a network of 900 franchisees is under pressure.
Myhome, specialising in residential cleaning, was started by Unilever, the food and soap behemoth. It sold to a rival operation run by Russell O'Connell. The group moved from Plus to AIM at the start of last year. Unilever retained a stake until last year, when it sold at, I understand, about 90p a share. But a string of famed serial investors were not so lucky. Nigel Wray, Bruce Rowan (who increased his holding in July), Stephen Hemsley and Mark Slater declared significant shareholdings. As the clouds darkened this powerful band, who had obviously found the group attractive in its go-go days, provided the best hope of survival. But, perhaps, Lloyds' demand killed any chance of a shareholder-led rescue and frightened the potential investor.
The fall of what was once a darling of the City is not a complete surprise. In recent months, warning signals, such as Lloyds' discontent, emerged. Before then, it seemed that although trading had slowed there was little to worry about. In March, new chairman Jon Pither suggested this year's results could be "significantly ahead" of last year's.
It is a spectacular crash. And it has, not surprisingly, created bad feeling in the City. One shareholder, the t1ps Fund, says it intends to contact the Government and the Financial Services Authority, questioning the conduct of O'Connell, Myhome's chief executive and former chairman.
As it put through five take-overs last year, it had little trouble, with its shares riding high, raising City cash. Yet with hindsight, it seems that the last deal, the £16m acquisition of the Chips-Away franchise, was a deal too far. Also, assimilating ChipsAway took too much management time. At 5p, Myhome was capitalised at £3.2m – making nonsense of the price paid for an admittedly successful business undertaking minor car repairs.
An expensive and unhappy end to what once seemed a remarkable franchise success story.