Personal Finance: Share Clubs - Takeover hunch pays off

Click to follow
The Independent Online
The latest in our regular series on the fortunes of the Reservoir Dogs share club, a group of London friends who pool cash and try to buy fast-growing shares. This month: fortune favours the bold.

THE START of 1999 certainly has been a corker for the club. Our six- month review this January showed the value of our shares up by 45 per cent, with the total fund showing a net increase (including costs and cash held) of 35 per cent in six months.

How have we been so lucky? Our star has been the small engineering firm Jones and Shipman. We bought the shares for only 10p each back in November, but within a month they had doubled to 20p. The machine tools firm, based in Leicester, has been on a ridiculously low rating. We thought the company would be a perfect buy for a bigger engineer.

We were right! In mid-December another UK outfit, Renold, snapped up the company for cash. We made pounds 450 profit on a pounds 450 stake. We'll probably reinvest our cash in some other unfashionable small engineering company waiting to be taken over.

The value of our shareholding in Oxford GlycoSciences has more than doubled.There's no bid story to tell here, just a correct prediction. The company, with a sound range of drug and science products, was unfairly hammered when it came to market in the spring. The shares floated at 280p, and are now above that. Expect the price to stabilise and then take off when the City gets to know the firm a bit better.

Acorn was another "in the dog house" story. It had received a hammering from the stock market as everyone thought it was yesterday's story and made old computers for schools that no one bought. In the last month or so, it has dumped that old division and dedicated itself to making digital TV and internet technology work.

There are also plenty of rumours that its huge stake in oh-so-sexy ARM (which makes amazingly fast microchips for new multi-media technologies) will be separated out and returned to Acorn shareholders. As Acorn is currently valued at pounds 100m but its stake in ARM is probably worth pounds 150m you do not have to be a genius to see why the shares have gone up 75 per cent since we bought them.

The story with our other two shares - Bradford Property Trust and AB Airlines, both bought in December - is a little less exciting. Bradford Property Trust is Britain's largest residential property landlord. The buy-to-let sector is booming and investing in property is worth a punt. Bradford, being the daddy of all landlords, should benefit most. Add in a juicy dividend of over 5 per cent, and you have a safe bet.

AB Airlines is a racy number. The share price of this relatively new airline hasn't moved but we have a hunch. AB runs some pretty good routes. One group member flew a key route and was told by staff that most flights were nearly full. We reckon AB is a takeover prospect.

Our latest buy is Brooks Services. Laundry and uniforms are such an unfashionable sector that Brooks' shares languish at a ridiculous rating. It also generates dividends yielding well above 5 per cent. Brooks will make a tasty mouthful for some bigger company.

Think small

Underlying our shares is an important group philosophy. We tend to like shares in deeply unfashionable sectors. Smaller firms have tended to under-perform the bigger shares for years now and sectors like biotech and engineering are unpopular. There are usually very good reasons for this unpopularity, but, as markets behave like sheep, good firms also get dumped on.

Our philosophy is simple. If you have to invest in shares, pick companies with a solid background, strong assets, good profits, and solid cash flow to pay a decent dividend.

If you are interested in setting up a share club, you'll need to gather three or more friends or colleagues. The non-profit organisation, Proshare, will supply you with a manual containing everything you need to get going. It normally costs pounds 25 but `Independent on Sunday' readers can buy it for pounds 20, including postage. Call 0171-394 5200 to order.

Bought Current Rise*

Company/date bought

AB Airlines (Dec '98) 70p 57p -20.7%

Acorn (Oct '98) 68p 121p 75%

Bradford PT (Dec '98) 215p 235p 6.4%

Brooks (Jan '99) 90p 90p -2.8%

Jones & Shipman** (Nov '98) 10p 20.5p 95%

Oxford GlycoSciences (Sep '98) 135p 304p 120%

*takes dealing charges into account

**final share price: company taken over