No Pain, No Gain: 'Safeway is a modest gain but S&U has certainly paid off'

S&U could soon become the longest-serving constituent of the no pain, no gain portfolio. I recruited the door-to-door credit group in April 1999, a week after I descended on Safeway, the supermarket chain that seems destined to disappear in a few months, to end its reign as our most senior member.

Although the portfolio should, hopefully, emerge from the farcical Safeway saga with a modest profit, S&U has turned out to be a far more rewarding investment. The shares cost 292.5p each. At one time they almost touched 200p. Helped by booming profits, the price reached 643p last year but began to evaporate as a fraud was discovered at their South-eastern branch office. The shares are now 455p, with evidence growing that the problem has been overcome.

The managing director, Anthony Coombs, has indicated profits could top £10m this year, a record performance. But interim figures were not impressive, falling from £4.5m to £4.2m at the pre-tax level. The setback largely reflected tighter controls in home credit after last year's wrongdoing, which ruined an outstanding record, profits shooting from £5.9m to £9.2m in four years. Last year's fraud-hit figure was £7.6m.

Mr Coombs says bad debts have been reduced and expenses are lower than a year ago. And the group's move into car finance continues to produce rewards, with a £1.6m profit contribution likely. Although half-year profits fell "their make-up and current trading point to strong growth in profitability in the second half", he says.

Like many other family-controlled and -run companies, S&U offers a tantalising dividend yield. Even with its travails in the South-east it lifted last year's total payment by 1p a share to 28p. Now the interim dividend is held at 8p, keeping the shares on a yield of more than 6 per cent, a particularly attractive return in these anti-saving days of exceptionally low interest rates.

Yet as a portfolio old-timer offers a mouth- watering return my two most recent recruits, Glisten and Wyatt, are not even on the dividend list. I suspect it will be some time before they are in a position to hand out cash to shareholders.

I am awaiting Wyatt's figures, due any day, but Glisten's maiden performance, which I touched on last week, is continuing to have an impact. The shares are about 155p, compared to my 114p buying price and last year's 80p flotation.

The confectionery group's pre-tax profits came out at nearly £1.4m. The analyst Peter Ashworth, at the company's stockbroker, Charles Stanley, expects this year's figure to be £1.6m, with £1.7m next year. Like most chocolate-makers, Glisten was hit by the August heatwave. But another of its operations, offering sugar-based coatings to the ice cream industry, frolicked happily in the summer sunshine, offsetting any meltdown in demand for chocolate goods. Some big contract wins in the last quarter of its past year and an expanded range of chocolate-coated Sun-Maid lines should have an impact on this year's figures.

In its first year on the stock market, Glisten demonstrated how it is possible to improve on a successful unquoted operation. Under its old management, the Blackburn-based business seems to have performed well, achieving profits of £1m in 2001. But it lacked that little extra which an ambitious growth-conscious group should command. The arrival of new management and cash through City investors seems to have galvanised the sweet-maker. Capital spending last year was nearly £250,0000, with £100,000 spent on doubling possible production of the group's smallest selling product, popcorn.

The chairman, Jeremy Hamer, leads the management at Inter Link Foods, the cake and pastry maker which is a top-performing AIM company and enjoyed a long and distinguished run in the portfolio. Inter Link has grown dramatically through carefully crafted and easily digestible acquisitions and although still a long way behind market leader, RHM, it is making its presence felt.

Glisten will adopt a similar policy, but concentrating on confectionery and related buys. And I would not be surprised if an acquisition, probably involving a share issue, is not far down the road. Mr Hamer has demonstrated he can be a master at handling well-timed, realistically priced deals in his highly competitive world. He has now to prove he can repeat the trick with small item chocolate and sugar sweets. I think he will.