No Pain, No Gain: Patient investors could get a strike with Georgica

Every investor deserves the occasional slice of luck. Just over a year ago, the No Pain, No Gain portfolio sold its shares in the Georgica leisure group. Its trading performance did not prompt the parting of the ways. I dumped the stock simply because it planned to split itself into two quoted companies – one covering tenpin bowling and the other snooker.

Under the portfolio's rules of engagement, such a manoeuvre presents a dilemma. Each constituent represents a £5,000 investment. So to retain Georgica I had to top up – or sell up. I opted for the latter, collecting 150p a share against an 87p-buying price.

Since then, the shares have collapsed. Recently, they were bumping along at a miserable 28p. They have subsequently improved, but only to a far from impressive 40p or so. The portfolio rules have for once come to my assistance.

The unremitting microcap sell-off, which has devastated so many once buoyant shares, has, of course, taken its toll. But other influences have seriously damaged sentiment. The group put itself up for sale but failed to clinch a deal. Then the decision to indulge in a break-up was only partially successful. The snooker clubs were sold but the tenpin bowling chain stuck and sale ambitions shelved.

There is little doubt that Georgica will, when the credit crunch abates and it is easier for bidders to raise cash, be back in play. A deal could even materialise in months. And any predator will have to come up with an enticing offer.

Such thoughts are not influencing the shares. The stock market regards the company as a leisure group that could suffer if recessionary restraints force bowlers to cut back. A takeover payday is regarded as too distant. Even so, with an asset valuation topping 80p a share there is, I would have thought, plenty to capture the attention of patient investors.

At one time, Georgica was known as Allied Leisure. It was a rather indifferent performer. Then, backed by a host of City institutions, Nicholas Oppenheim appeared. He had revitalised a nightclub chain called Northern Leisure, selling at a handsome profit to bigger rivals Luminar. His brief was to work the same magic at Allied. But I suspect Oppenheim would admit it's been a longer and harder slog than he anticipated.

Still, Georgica now appears to be in excellent shape. All he needs to complete his task is that elusive bid. In the meantime, the new look tenpin bowling chain, with around 40 outlets, seems to be going well, with flat trading towards the end of last year replaced by distinct signs of an improvement at the start of this.

The Oppenheim-led revolution gathered pace last year. The sale of the Rileys snooker clubs and various property deals, including sales and leasebacks, pulled in £118m. The timing was perfect. As chairman Don Hanson observes: "The prices achieved were at a level clearly unobtainable today." Debts have been cut from more than £100m to not much more than £4m. Pre-tax profits – up from £903,000 to £7.2m – have also benefited.

The North Atlantic Value fund, run by the JO Hambro financial group, is the biggest shareholder. It recently topped up its stake to nearly 25 per cent of the capital. Schroder Investment Management, a major player in the Oppenheim arrival, has 16.2 per cent. North Atlantic was one of the parties that acquired the snooker business. With Greenhill Capital Partners, it paid £34.9m for the clubs where trading is suffering from the smoking ban.

Oppenheim, who is 60, is the group's executive deputy chairman. He was also chief executive until 16 months ago. With his family, his main shareholding influence is through holdings of convertible stock. The low share price reduces the reward he no doubt believes he should enjoy. Other executives, whose options fall due at much more than 40p, must also be peeved.

I know that directors invariably believe the stock market is treating their company's shares unfairly. But the Georgica brigade has a justified complaint. Even in these uncertain days the shares look exceedingly cheap on trading considerations, despite higher rental costs. And I believe a predator will strike and that Oppenheim and his team will make sure a full price is paid. The shares seem a splendid lockaway for patient investors.

cash@independent.co.uk