Mears, the support services group, was an early constituent of the No Pain, No Gain portfolio. It alighted on the shares at 23p, selling at 71.5p. At the time, I was delighted with the profit. However, my joy was short-lived – the shares subsequently romped ahead, hitting a peak of 380p.
One oft-repeated stock market saw is that it is never wrong to take a profit. As Mears continued to hit new highs, my belief in this old saying was severely tested. I tried to console myself with the thought that the sale was an expedient necessity as I was due to depart on an extended holiday, leaving behind highly rated shares that looked vulnerable as the stock market seemed to be heading towards one of its recurring nightmares.
Nowadays, AIM-traded Mears bumps along at around 272p. Although profits have continued to advance, the shares have not avoided the sell-off that has devastated so many small-caps. Yet the group's prospects look fine to me. Few businesses are recession-proof, but Mears could be a good bet to weather any economic storms.
I know there is a strong argument for never going back. Robert Goddard, one of my favourite novelists, has written a gripping yarn, Never Go Back, illustrating that old haunts can be dangerous. But avoiding past stamping-grounds has little merit when it comes to investing. Some investors spend much of their time jumping in and out of the same shares. They do so to make money. I am a buy-and-hold player – not an active trader. Even so, the temptation to return to past successes is sometimes difficult to avoid.
Already, the portfolio has revisited Myhome International, with a rotten reward so far. Undeterred, I am taking the return plunge again and re-recruiting old faithful Mears. In these difficult conditions it is so easy to make the wrong call. But, as I said last week, the stock market havoc has thrown up some gems; the support services group, run by Bob Holt, looks to be one of them.
The company arrived on the stock market at 10p in 1996. In those days, profits were £426,000. Last year, it produced £15.5m – and hopes are running high that it will comfortably top £20m this year. Its order book is £1.4bn, with 97 per cent of forecast 2008 sales and 77 per cent of next year's already in the bag.
Mears has made its fortune largely from social housing. It has long-term contracts with a string of local organisations. Last year, it won deals worth more than £500m and confidently expects to add to its list of link-ups this year.
Although maintaining and repairing houses still represents much of Mears's endeavours, it has embarked on a spot of diversification. Last year, it moved into the homecare market, paying £23.8m in cash and shares for Careforce. It quickly bolted on eight relatively small care operations for £10.6m, with two more acquired this year.
With an ageing UK population, Holt sees the homecare business developing in a similar fashion to social housing as more and more local authorities embrace the outsourcing formula.
There is always the possibility that Mears could attract bid attention. It is capitalised at £199m, an easily accessible sum even in these outrageous credit-crisis days. And Holt and his team could be tempted along the takeover trail; Mears is known to be one of the groups looking at the Nestor healthcare operation.
Now to an unhappy constituent, Rentokil Initial. Despite the arrival of three stalwarts from the now departed Imperial Chemical Industries, the shares remain unappealing. I decided to hang on after the recent profit horrors, awaiting signs of remedial action. Well, the advent of a new management team must be a hopeful development. But reshaping the group is going to be a long, hard slog.
I note that the newcomers start to get into the share money when the price hits 120p. That could be some way off, particularly, as seems likely, kitchen-sink accounting will come into play and the dividend could be savaged.
I have decided to stick with the shares for the time being as I do not expect them to give up much ground in the new, more hopeful climate. But I do not see the portfolio continuing as a long-term shareholder.Reuse content