No Pain, No Gain: Small-cap carnage leaves Addworth feeling sore

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The Independent Online

Mark Watson-Mitchell, a flamboyant veteran whose career has embraced many aspects of City life, has emerged as an enthusiastic fan of Plus, the increasingly important share market I discussed last week.

He is chairman of Addworth, an AIM-traded group that is described as "active capital investors". Besides taking stakes in small-caps, it often offers financial and management help. And that help can include a flotation on AIM, the London Stock Exchange's junior market, or Plus, which is, in effect, the City's third-tier share trading facility.

It is, however, Plus that seems to be occupying much of his attention. Last year, Addworth introduced five companies to Plus, including Three's a Crowd, an events management business founded by London society It girl Tara Palmer-Tomkinson. The roll-out should increase this year with eight companies expected to float on the fringe market. In addition, Addworth has substantial interests in four other Plus groups, as well as more modest investments in other constituents.

Of course, some of its collection is earmarked for elevation to AIM. Uranium Prospects, engaged in exploration in Canada, is likely to make the move in the near future.

As if to underline Watson-Mitchell's role as "Mr Plus", he was involved in this year's inaugural Plus awards dinner at London's Mayfair Hotel when Frazer Thompson of English Wines Group (a constituent of the No Pain, No Gain portfolio) was voted the market's chief executive of the year.

Watson-Mitchell is 61. He launched Addworth on AIM in early 2005. The shares were at one time just over 6p; they are now 1.5p. Not surprisingly, he is acutely disappointed by their performance. Like many small-cap heads, he is astonished at the way shares have suffered in the stock market turmoil, which, on average, has lowered AIM valuations by some 40 per cent. He and other directors gave vent to their feelings last month by topping up their shareholdings. His stake is now 20.3 per cent. Other backers include serial investors Bruce Rowan and Nigel Wray. Rowan has 9.6 per cent with Starvest, his AIM-traded vehicle, accounting for a further 9 per cent. Wray sits on 16.3 per cent.

In its last financial year, Addworth suffered a £626,000 loss against a £169,000 profit. But with small caps enduring a brutal mauling since last summer, such a display is not entirely surprising for a go-go investor. Watson-Mitchell says the loss was in part due to higher costs developing the group's business model and pumping cash into a Guernsey-domiciled to-be-floated insurance operation.

He, however, stresses that net assets rose 55 per cent to £3.8m, compared with a capitalisation of only £2.1m.

Investment successes included Myhome International, a portfolio constituent, which produced a near £150,000 profit. The AIM-traded Maypole hotel group was among the losers, with Addworth dropping £56,000.

The eight planned Plus newcomers are an interesting bunch. They include a company running farmers' markets. It has a chain of 14, but expects soon to hit 20. There are around 550 of these markets spread across the country and this aspiring Plus candidate has a target of at least 50. "We are turning a lifestyle business into one with real commercial legs," says Watson-Mitchell. Others on the launch pad include a Savile Row tailor, a tourist operation in Zanzibar and a pre-float investment vehicle. He adds: "We are beginning to realise that we have developed an interesting niche in helping to fund early-stage companies and take them rapidly on to the Plus-quoted market."

I first encountered Watson-Mitchell in the early Seventies when, displaying keen predatory instincts, he built hostile stakes in two quoted companies. He has worked in stockbroking and fund management, tried his hand at publishing, city hackery and has established a small-cap research company, SQC Research.

But he is, perhaps, best known as a small-cap share tipster, enjoying an exciting run on the Watshot website where his spots included Asos, the online retailer.

Its shares went from around 4p to more than 350p. Even so, like the rest of us, he has calls he would rather forget.

The portfolio's latest disaster is Myhome. I did not play it as successfully as Watson-Mitchell. The portfolio alighted on the shares at 15.5p, sold at 50p but then foolishly returned at 27p. After appalling fig-ures (more about them next week) the price is now down to 11.25p.

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