No Pain No Gain: New issues trickle on to market, but the shell game still pays off

New issues are inevitable casualties of a long, wounding stock market retreat. When shares are rampaging ahead, there is an impatient queue of candidates seeking investors' cash. Vendors have little trouble getting an offer away, often commanding a rich price for the shares they sell. There is also the chance of a strong after-market providing further rewards. But today, with investors sitting on their wallets, any new issue not deep in the bargain basement is in danger of being left on the shelf. And few promoters and vendors want to risk an expensive flotation flop.

New issues are inevitable casualties of a long, wounding stock market retreat. When shares are rampaging ahead, there is an impatient queue of candidates seeking investors' cash. Vendors have little trouble getting an offer away, often commanding a rich price for the shares they sell. There is also the chance of a strong after-market providing further rewards. But today, with investors sitting on their wallets, any new issue not deep in the bargain basement is in danger of being left on the shelf. And few promoters and vendors want to risk an expensive flotation flop.

Still, the City's new issue market is not completely dead. A few companies are still prepared to risk the investment environment. The recent crop exchanging, for a variety of reasons, private for public status include a few gold miners (perhaps unsurprising, with bullion enjoying its traditional stress and strain glitter), several financial operations needing a stock-market presence and, unusually, a bus company.

Punch Taverns, running a chain of traditional pubs, is a classic example of investor indifference. At first it tried to float at 300p a share. It got the investment cold shoulder. The pubco, with many of its backers keen to sell, then managed to get the issue away at a cut-price 230p, a level the shares have occasionally visited: they are now about 170p.

Two new issues I have examined have avoided a Punch-style beating-up. Judges Capital, a financial group, arrived at 95p a share and now hovers at 97.5p, while 2 Travel, the bus operator, is 7.75p against a 7p offer price. Both are intent on using their shares for expansion.

Judges is the creation of the serial investor David Cicurel, who used to run the quoted Continental Foods. A prime Judges objective is to make money by encouraging small companies to quit the stock market. It will build a significant share stake and through "a friendly but resolute approach will seek to encourage the target to go private". Mr Cicurel knows the game: he took Continental private nearly seven years ago.

Judges has a tight shareholder base. Its backers include Guy Naggar with about 15 per cent of the capital. He is the man trying to inject the Groupe Chez Gerard restaurant chain into the Paramount shell. Judges has its sights on another shell, Lionheart, once known for its bathroom accessories, sitting with some £11.5m in the bank.

But it faces a battle. Sigma Technologies, specialising in hi-tech investments, is also captivated by Lionheart's cash pile. It has made an agreed cash and shares offer valuing Lionheart at 145p a share. Judges picked up 3.8 per cent of Lionheart, some at 134p a share, and I expect it to mount a counter-offer.

Whether Judges captures Lionheart, it is clearly intent on creating ripples among smaller quoted companies. I get the impression it is already examining other possible targets.

The action over Lionheart must encourage disenchanted investors locked into cash shells. After all, shells are, in effect, part of the new-issue business. Still, the actions of Judges and Sigma show shells with cash in the bank may be raided.

The Welsh bus and coach operator, 2 Travel, raised £1.6m through the sale of shares and convertible loan stock. It could have adopted the reverse take-over route but opted to arrive via a placing. Plans are afoot to lift its 74-strong bus and coach fleet to 150 and it is looking for more bus routes, often seeking to take up niche, but profitable, rides the major groups no longer want. The bus business of 2 Travel operates mainly in South Wales but the chief executive, Bev Fowles, is keen to spread into the West Country and is thought to have share-exchange acquisitions on his agenda.

Judges and 2 Travel are, in City terms, run-of-the-mill operations. English Wines Group (EWG) is, on the other hand, unique. It embraces the gentlemanly, often amateurish, world of English wines, which accounting for half of the business. The chairman, Paul Brett, believes hard-nosed commercial realism should be injected into this cottage industry and is raising cash at 15p a share. He plans a presence on the fringe Ofex market, which is thinking of following the example of its bigger cousin, the London Stock Exchange, and floating itself.

EWG takes in two Kent vineyards attracting 70,000 visitors a year and operates one pub specialising in English wines. It intends to increase production and sales and plans a 15-strong chain of wine and food-led pubs.

The group's wines, sold under the Curious Grape banner, have an appreciative following and its Bacchus wine was chosen by The Independent's David Rose as one of the top 10 white wines selling for under £10.