Paramount star is fading from the picture

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The Independent Online

There is a strong case for taking profits on pubs chain Paramount, one of the first constituents of the no pain, no gain portfolio. The shares have touched 28p from the 15p buying price after last week's announcement that the company will turn itself into a cash shell.

There is a strong case for taking profits on pubs chain Paramount, one of the first constituents of the no pain, no gain portfolio. The shares have touched 28p from the 15p buying price after last week's announcement that the company will turn itself into a cash shell.

The pubs are being sold to the Royal Bank of Scotland and it is putting the management of them into the hands of a company owned by two Paramount directors. As a result, Paramount should end up with £6.4m cash. Chairman Michael Lunn is looking for acquisitions that have the "potential to enhance shareholder value".

I descended on the shares in April last year because they were undervalued. If the company did not attract a bid it would, I believed, grow its pubs estate.

Well, it collected at least one bid - from Burtonwood Brewery at an undisclosed price - and made strenuous attempts to add to its pubs chain. Stock Exchange red tape killed its most ambitious deal. It was blocked from taking over the management of 285 pubs owned, coincidentally, by the Royal Bank after the Exchange decreed a management contract represented a Class One transaction, which entailed Paramount publishing a circular detailing the profits and assets of the pubs involved.

But as it only planned to manage them it was not in possession of the necessary information which, in fact, belonged to the Royal Bank. Not surprisingly, it regarded such details as commercially sensitive and refused to release them to Paramount. So the deal failed.

High pub prices and Paramount's lack of substantial liquid resources seemed to have prevented outright buys. Indeed, the estate, now 145 strong, appears to have "lost" a few outlets in a couple of years.

Paul Davies, the man who masterminded the rescue of the Chester-based chain, is one of the directors taking over management of the pubs, which are costing the Royal Bank £19.6m.

Mr Lunn's frustration at the little company's failure to expand its operations is understandable. And the sale price, with the deal with the Davies company, quaintly called Undersea Services, look perfectly reasonable. But there are already a few cash shells floating around the market and when they do find suitable acquisitions, often a protracted exercise, shareholders are not always richly rewarded.

So it is tempting to take advantage of Paramount's new-found strength, though it is cash-rich and, perhaps, holds out the promise of a tempting future. After all, the reason behind the investment has changed - I went for a pub chain, not a cash shell.

But I have decided to hold fire for a short while as the sale is not yet a done deal. Shareholders with 35.5 per cent of the votes have accepted. But it seems one of those yet to sign up is Burtonwood, which sits on 8 per cent. The proposed pub sale may clear the way for it to roll out a hostile offer.

There are other shareholders yet to accept. They include De Vere, the hotel chain with 15.2 per cent, and Bass with 4 per cent. I am not suggesting they will mount bids but they could support Burtonwood, a Warrington-based group, which has about 500 pubs in the area covered by Paramount and a 40 per cent interest in a brewery.

I said last week that Weeks, another portfolio constituent, was on the borderline. The building and engineering consultancy has since produced perfectly acceptable figures, lifting profits, before exceptionals, by 18 per cent to £786,000 and increasing the year's dividend. But the drive, which I thought I detected when I alighted on the shares, has yet to materialise. That may be about to change. The reshaping of the group is now complete and more, admittedly modest, acquisitions are in the pipeline.

The shares, at 4.25p, are at my December buying price. I know the portfolio is for the long term but unless they perk up they could suffer the old heave-ho.

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