Food firm shrugs off fuel crisis

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The Independent Online

Inter Link Foods, the little baker producing such delights as chocolate mini-rolls and cherry bakewells, is one seemingly vulnerable company that appears to have survived the fuel crisis without any nasty indigestion.

Inter Link Foods, the little baker producing such delights as chocolate mini-rolls and cherry bakewells, is one seemingly vulnerable company that appears to have survived the fuel crisis without any nasty indigestion.

I was anxious that deliveries to supermarkets and other customers had suffered in the week-long protest. After all, with two of its three bakeries in Lancashire, it could have been one of the first to be hit by the blockade.

But Inter Link, a constituent of the no pain, no gain portfolio, has managed to carry on without undue hardship. Earlier this month chairman Jeremy Hamer reported tasty progress. He said first-quarter turnover had risen 33 per cent and profits 40 per cent.

So any worries that Inter Link may have suffered a short-term setback blunting its spectacular progress were unfounded. If it had been forced to curtail deliveries it would, of course, have represented "lost" trade which would have been impossible to make up.

Its ability to shrug off the impact of the fuel crisis means the high hopes of its supporters, who include shrewd share tipster Jim Slater, should be fulfilled.

Last year the company produced £1.11m against only £37,000 in 1996. This year analyst Peter Cooper at stockbroker Brewin Dolphin expects £1.63m with more than £2m likely in the following year.

Any forecasts could be overtaken by acquisitions. Chief executive Alwin Thompson has made no secret of his hunger for growth. This year the company acquired a novelty cakes business and has taken an option to buy another cake-maker.

The composition of the packet cake industry offers plenty of expansion. It is dominated by one major power, Rank Hovis McDougall; the rest is split among a wide assortment of mainly small operators. RHM was sold by Tomkins, the last of the big conglomerates, for £1.1bn to venture capitalist Doughty Hanson in the summer.

Inter Link, as a small nimble-footed group with experienced management, has taken advantage of RHM's strong position and eaten into the market share of smaller competitors. Supermarkets are its main customers. In fact, 95 per cent of its sales are own-label brands to big multiples.

The company arrived on AIM at 110p two years ago. Since then, its shares have been down to 97.5p and, around the time of this month's trading statement, as high as 330p. They are now 305p, giving a capitalisation of only £14.7m, against the 196p they stood at when I decided to put them into the no pain, no gain portfolio in May. The shares are selling at approaching 13 times expected earnings.

Galliford, the building group, is another portfolio constituent that has provided action. Its surprise takeover of the Try building group has gone through, with shareholders representing 81.5 per cent of Try's capital accepting the offer.

The fall of Galliford's shares from 26p to 21.5p is not surprising because Galliford was itself seen as a takeover victim and selling by disgruntled investors has done the damage.

There is a danger former Try shareholders may increase the pressure if they do not want to hang on to their Galliford shares.

The merger makes sense. And theget-together should provide extra muscle to allow the enlarged group to compete more powerfully in a fiercely competitive industry.

It would, I believe, be unwise to think the takeover story is dead. Galliford Try, as the group will be known, could still attract a hostile strike despite its defensive merger.

I have lost some of my enthusiasm for Galliford. Still, we are in this game for the long haul and although the Galliford story has changed dramatically and the shares have had a disappointing run, I have decided, with reluctance, to stick with them.

The portfolio is still showing a modest profit - the tip price was 20p - but the slide since the deal was announced, although not unexpected, is disappointing. Perhaps when the merger is bedded down and sales by unsettled shareholders absorbed, the price will start to move back to the 30p touched in February.

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