No Pain, No Gain: Our Man's Portfolio - Hacking into a chance for a Net profit

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HOW ABOUT a modest Internet play with the back-up of profits as well as dividend payments? Such a combination does exist - in City of London PR Group, one of the smaller financial public relations operations.

First I must declare an interest. I have known John Greenhalgh, founder and controlling shareholder, since the Sixties when we worked together in the City office of the late, lamented London Evening News.

In those days he was an avid investor and retained his enthusiasm when he moved into public relations. Indeed he could be criticised, perhaps, for using too much of City of London's flotation cash building a share portfolio instead of developing the group's core businesses.

But the former hack could justifiably respond by pointing out he has created an investment spread worth around pounds 6m, and City of London has an enviable dividend record. Last month investments equalled 87p a share although, after the sale of a market research company, it could be suggested investment assets (including cash) stood at some 95p a share.

The market research sale was rewarding. City of London paid pounds 50,000 for the business eight years ago, trousering pounds 1.1m when it unloaded. Some pounds 200,000 of the gain has been pumped into a start-up Internet operation called CBSH. In typical Greenhalgh fashion, the investment has been cautiously structured with City of London's up to 49.9 per cent interest represented by a five-year convertible loan note.

CBSH is launching a web-based service linking companies around the world with 1,300 existing Internet sites. It provides details of buy or sell offers on a variety of products and also lists statistics and details of companies operating in specific fields.

There are hopes of several thousand users by the end of the year and Mr Greenhalgh expects his surfing exercise to be cash flow-positive in six months.

The CBSH push is the first aimed at companies wishing to buy and sell through the Internet. There are estimates that commercial enterprises will, through the Web, sell each other pounds 12.6bn of products this year, a far higher figure than most estimates for what many regard as the more exciting consumer purchasing log on.

City of London could be on to a realistic Internet investment; the beauty is that even if its hopes are not realised its limited exposure will not cause any anxiety.

I have been accused of ignoring hi-tech shares in the construction of the no pain, no gain portfolio. Well, I am something of an investment Luddite; I do like to see profits and feel the payment of dividends is an essential factor in portfolio building.

City of London meets, even with its Internet touch, what in these investment surfing days, appears to be old-fashioned requirements and should be a rewarding addition to the portfolio.

The group's public relations side, which has a heavy mining exposure, does not appear to have much going for it. Last year it made pounds 246,200, up from pounds 230,900. Attempts in recent years failed to expand its spread of interests. At one time it seemed near buying the Citigate financial public relations group, now a major part of Incepta, which has a capitalisation of pounds 137.5m against City of London's pounds 9.5m.

The investment portfolio is actively managed and contains Greenhalgh specialities - convertible preference and irredeemable preference shares. It also has such ordinary shares as jeweller Signet and holidays group First Choice.

Other holdings include OsmeTech, the old AromaScan, and Prime People, the catering recruit- ment group. For a long while the PR group's shares bobbed around between 70p and 90p; the little difference between assets and price reflected the stock market's lack of enthusiasm.

Since the group's Internet surfing became apparent, the shares have been as high as 127.5p. They now reside at 117.5p where, for anything relating to the Internet, they offer the unbelievable advantage of a handsome and pretty reliable 5.4 per cent dividend yield.

But the Web-inspired advance means they are selling on 27 times last year's earnings; high, but not by Internet standards.

Mr Greenhalgh says the current year should be one of "measured adventure". With public relations trading slack and the marketing company sold, he may mean a modest profits decline is on the cards.

Still, a fall from a little more than pounds 1m to, say, pounds 900,000 is a small price for reserving a possible Internet spot.