No Pain,No Gain: Small can be beautiful - and very profitable, too

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The Independent Online

It's time for new faces in the No Pain, No Gain portfolio. In the past month or so Merrydown has departed (at a handsome profit) and I intend to ditch Allied Domecq in the next few weeks. It, too, should produce a rich reward. I am also, as readers know, contemplating selling some of my unsuccessful investments, underlining the need for recruits.

I have examined a number of possible newcomers. Although I am still pondering the merits of some I have come to the conclusion that two of them look promising enough to replace the two drink groups, Merrydown and Allied.

They are contrasting companies - Lennox and Access Intelligence. Both are small and little known but they are displaying the sort of get-up-and-go attitude that marked the progress of little Merrydown. I am not, I hasten to add, implying that Allied is a ponderous dinosaur. Far from it. But the world's second largest wine and spirit group is a major enterprise, a blue chip that is in an entirely different league from Merrydown and my new constituents.

Lennox is one of those low profile operations, which seems to shun investment exposure. The shares slipped quietly onto the stock market in December at 45p, producing some £4m for the company. They are now 64.5p - after touching 72.5p. The group is one of those niche players, which seems to have hit on a good idea and knows how to exploit it. For the past 13 years Lennox has distributed food and drink - not in this country but in Spain. Its prime intention is to cater for the thousands of ex-pats and holidaymakers who dream of Spanish sunshine and like to enjoy, at least some of the time, British food and drink. Of course if any Spaniard samples the UK fare then the Lennox men are not disappointed.

More than 1,500 domestic brands, including many popular labels, are sold to around 800 Spanish outlets, ranging from supermarkets and shops to bars and hotels. It is clearly a lucrative business. Last year Lennox, capitalised at £15.6m, produced profits of £1.7m before tax and paid a 2.7p a share year's dividend. More than £2m should be achievable this year.

I would not be surprised if the group, which is not short of cash, embarks on a few take over excursions. Organic expansion is already planned. It has indicated that France and Portugal, with their growing ex-pat communities, could represent its next challenge. If profits hit £2m this year the shares are selling on an undemanding rating of less than 8 times prospective earnings.

Access Intelligence, on the other hand, is highly rated. Its shares at 9p command a ratio of around 41 times the earnings forecast by analysts Luke Ahern and Amisha Davda of the Corporate Synergy investment house. They believe profits this year should reach £130,000 with £350,000 likely next. Of course such projections, which I suspect are quite conservative, assume the group will refrain from any more corporate activity and that is highly unlikely. After all Access, with £2m tucked away, says acquisitions remain a priority.

The group, providing information, advice and services to businesses and other organisations, has just put through a relatively small, but seemingly significant deal, taking over Ridgeway Technologies, an IT services company.

As readers know I am not a technocrat. Indeed I find it impossible to get my head round the activities of many of the new economy companies. Give me the old economy any day. But I am venturing into the high-tech world again because I believe in following successful businessmen. The portfolio has reasons to be exceedingly well disposed towards Jeremy Hamer, the Access chief. He played a major part in developing two of its most rewarding investments - Inter Link Foods, the cakes and pies group, and Glisten, a confectionery maker. Both companies are, like Access threatens to be, highly acquisitive.

My other high tech involvement is represented by Wyatt, where I am banking on Bob Holt, the man behind the successful Mears support group, and Printing.com. Wyatt has yet to produce the sort of progress I anticipated but Printing.com has made encouraging headway.

Backing a successful man is often a rewarding exercise. Indeed I am hoping Access makes it a hat trick of winners for Mr Hamer - and the portfolio. He arrived in October, just ahead of a £3m cash raising. Until he became chairman Access seemed destined to mill around uncertainly, getting nowhere very fast. But the climate has changed dramatically. It is interesting to note that at Access he is supported by two of his Inter Link colleagues, Alwin Thompson and Colin Davies. So with the experienced Brendan Austin as chief executive the little group, capitalised at £5.2m, has plenty of management muscle.

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