No Pain, No Gain: An online disappointment that still has promise

Wyatt, a small online consultancy, has been a bitterly disappointing investment for the No Pain, No Gain portfolio. The shares were recruited at 27.5p more than three years ago. Since then they have touched 40p but they now bump along at a depressing 9p.

When I descended on them I realised I was in for the long haul. But I did not expect the shares to get into such a sorry mess. There is no doubt that the group has, like so many internet ventures, failed to deliver. The question is, should the portfolio hold on in the hope the company is still on the threshold of a breakthrough or swallow an uncomfortably heavy loss and dump the shares?

I have decided to sit tight. The latest report and accounts, although far from exhilarating, do offer a glimmer of encouragement although some investors have clearly taken the view that the group has lost its way. Yet the unhappy share price could be yet another example of the stock market getting the wrong end of the stick, just like it did with Stagecoach.

Remember four years ago when shares of the bus and train group, another portfolio constituent, touched 10p against the 80p I had paid? I gritted my teeth and stuck it out. Thankfully they are now around 135p.

In the year ending March, Wyatt lost £717,000, down from just over £1m in the previous year. It would be foolish to expect profits this year. Indeed a cash raising exercise looks more likely.

But chairman Bob Holt, the man behind the highly successful Mears support services group, is far from downhearted. He has taken Wyatt into three rather arcane areas and says he is "actively looking for the right transaction to transform the group and take it on to the next stage".

Currently Wyatt has a fire-risk assessment business called Risksmart; a tax, legal and human resources side under the Premier Employer Solutions banner and Wyatt Biotech, a drug testing operation. Premier seems the most advanced. Last year it lost £30,000, almost entirely due to backdated charges, and is now profitable. Risksmart is on target and should benefit from the new, allegedly simplified, fire-safety rules just introduced. Wyatt Biotech could start distributing a US fingerprint testing system in the next few months

Quite clearly Wyatt is a high-risk investment. Still it is a far better bet than most of the small exploration companies now cluttering up the Alternative Investment Market (AIM). The biotech operation is still in its infancy but the group does have one profitable business and another near to producing a return. And, as befits a loss-maker, it is being run on a shoestring.

Now to a former portfolio constituent - MacLellan, a support services group. I - and others - took the view that shareholders had been short-changed when it fell to a £116m cash and shares takeover from its bigger rival, Interserve. Shortly after the deal was completed Interserve disclosed accounting irregularities stretching back five years at one of its offshoots. Consequently its shares dived to around 260p against 382p used in offer calculations.

But the damage was nowhere near as severe as feared. Indeed the company announced remarkably impressive interim profits of £23.1m against £14.1m and drew a line, possibly costing £30m, under the accountancy problems. Chief executive Adrian Ringrose said: "We have made the correction and we can now move forward."

With Interserve's shares now around 360p, Bob Morton, MacLellan's former chairman, has decided not to pursue his legal threat to claim compensation. So a happy ending? Not quite. Small MacLellan shareholders have been lumbered with little parcels of Interserve shares that will be costly to sell.

Finally, another ex-constituent, DataCash. The shares took a hammering in the internet gambling bloodbath. They crashed from 228p to around 125p and are bumping along near 150p. The company is now saying its involvement in US online gambling is being reduced. And it is clear that its core business of providing credit-card-payment facilities continues to grow, underlined by progress at last being made on the chip and Pin front.

Nevertheless, its shares, still on a fancy rating, remain vulnerable. Although they initially advanced strongly after I decided to sell at 169.5p, locking in a 92p a share profit, I think my caution was justified.

cash@independent.co.uk