No Pain, No Gain: Time's up for English Wines Group, one of my 'walking wounded'
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The Independent Online

The tremors at Nighthawk Energy have helped prompt an agonising and perhaps sceptical reassessment of the No Pain, No Gain portfolio. My little investment exercise remains comfortably in profit but it could be embracing too many "walking wounded". I realise I am often slow to ditch a share. My inclination is to wait and see whether prospects improve. Sometimes they do, sometimes they don't.

When the stock market is deep down in the dumps – such as early last year when the Footsie seemed to be moving perilously close to 3,000 points – the temptation to sell can be overwhelming. But it would have been foolish to have succumbed, as this week's Footsie levels indicate.

I am not necessarily opposed to drastic selling action. Some observers feel the outlook for the world economy is so gloomy that investors should escape from the stock market while it is still possible. Others do not agree. It is, of course, a multitude of views that create a market – any market.

The portfolio is carrying what I would describe, in share-price terms, four "walking wounded" constituents. In addition to Nighthawk, which I discussed last week, I count Lighthouse and Private and Commercial Finance (PCF), both AIM-traded, and English Wines Group (EWG), a Plus share, as my endangered species. By a narrow margin, I decided to hold on to Nighthawk, although the shares are a long way from my 44p buying price.

I am also retaining Lighthouse. Although the shares have nearly halved, the accountancy group is profitable, dividend-paying and cash-rich. I am less convinced by PCF. It is making money – but not as much as some expected – and has not paid a dividend for five years. Last week some loan notes, offering 8 per cent, were converted into shares at 76p against a ruling price of around 6p. An astonishing deal. I suppose the note holder needed cash or felt there was no chance of the shares improving. Perhaps both influences prevailed.

I am not selling PCF, although, like Nighthawk, it could merely be a stay of execution. But I am dumping EWG. The shares have been a bitter disappointment. The portfolio invested in May 2007 at 20p, watched the price fizz up to 26p, and then suffered the torment of the shares slipping to 11.5p; as I write they are 13.5p.

Although the decline is not so sharp as PCF and Nighthawk, the profits outlook is far from encouraging. I had expected the company to be handsomely in profit by now – probably notching up more than £1m. But it has failed to deliver. Last year's profits were £62,000 and it recently uncorked a £63,000 half-time loss. A contributor to the setback was interest payments on a loan stock that will cost the company around £88,000 a year.

The notes, carrying an 8 per cent interest rate, were issued last year. It was one of those private placings from which the body of shareholders was excluded. Directors and a few others subscribed.

I hope EWG manages to increase quite dramatically its level of return, otherwise the loan, which is convertible into shares, will continue to have a sobering influence on what should be a promising enterprise. After all, consumption of English-produced grape wines is increasing and EWG complains demand outstrips its ability to supply. When I enlisted the shares, I realised it was a long-term investment. But the lack of progress has been quite debilitating.

The portfolio has one other Plus share, NCI Vehicle Rescue. It has performed quite well. The problems confronting the fringe Plus market, illustrated by its owner's "penny dreadful" share price, are being addressed. The outlook certainly seems a little brighter than a few months ago. Even so, I am reluctant to get too engrossed. But NCI does not deserve to stand in isolation and I believe the portfolio should accommodate at least one other fringe share.

I have therefore alighted on Rivington Street Holdings, a financial group I discussed in August, as the replacement share. RSH was recruited at 27.5p.

Finally, fully listed portfolio member Marston's: the brewing group last week rolled out an encouraging trading statement, indicating that year's profits should emerge at around £72m. The big question is: will the dividend be cut? We will know in early December.

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