Derek Pain: Crunch time share sale for growing SnackTime

No Pain, No Gain

Another constituent of the no pain, no gain portfolio is tapping the stock market for cash. SnackTime, recruited in September, is raising £5.8m through a placing at 170p a share against a then ruling 182.5p.

Readers know how I feel about such share sales. Once again a privileged few have been invited to subscribe for shares although I must admit that in this case the placing discount is rather narrow and, with the market in SnackTime's shares exceedingly thin, could quickly disappear.

I do not understand why old fashioned rights issues or placings and open offers are not adopted more often. I expect the tired old defence about the cost and timescale of such exercises would be trotted out. But such special pleading cuts no ice with me. Placings ensure that many existing shareholders are left out in the cold, suffering dilution, and a selected gathering allowed to pile in.

Shareholders outside the charmed circle are often left watching their shareholdings surrender value as short-termers from the placing extract their profits.

Two portfolio constituents have indulged in placings in recent times. City institutions and in-the-know shareholders on the books of selected stockbrokers probably took up the stock – at favourable prices. Some were clearly long-term shareholders but the subsequent performance of the shares suggests that quite a few were in for a quick and no doubt rewarding killing.

The redeeming feature of SnackTime's cash raising, which is still subject to shareholder approval, is the modest discount. Those taking up the shares are embracing something of a risk whereas too often the gap between the placing and ruling prices is sufficient to make the element of speculation outrageously comfortable.

I believe all shareholders – big and small – deserve to be treated equally. There is no doubt that major shareholders, institutions and private individuals, still, despite mountainous regulations, get the bigger bite of the investment cherry.

The portfolio cannot take part in any cash raising exercise. Under its rules of engagement it has to confine each investment to £5,000. And don't forget the portfolio is a notional exercise. Although its imaginary wallet is sealed, many buy and hold investors would, I suspect, appreciate the chance to avoid dilution and plough more into a company they have decided represents a good home for their money. The fact they are denied such an opportunity makes a nonsense of any claim the City makes to equality and, indeed, shareholder democracy.

The narrow SnackTime discount indicates it has attracted longer-term shareholders – institutions only, according to its statement – than many other placings. The company, which owns the snack machines it installs in factories, offices and shops, is clearly eating up cash. It needs the extra funds to continue expanding its spread of chilled vending machines and grow its newly developed hot snack operation.

And SnackTime, headed by serial investor Michael Jackson, is also on the look out for acquisitions. It recently swallowed its main domestic rival, MBM, in a £1.5m deal. More takeovers are on the agenda with overseas buys a possibility.

The group arrived on AIM towards the end of 2007. It raised around £3.4m through its flotation and a subsequent placing. About £600,000 was pulled in by issuing convertible loan stock.

In its last full year the company produced profits of £202,000, up from £123,000. It says MBN has been successfully absorbed and current trading is "strong". Interim results will be announced on Christmas Eve, a notorious stock market session when meaningful trading is almost non-existent as many inhabitants either stay at home or indulge in some early celebrations. Very little transpires in the few hours the stock market is open. Indeed, the festive trading atmosphere is so somnolent that it is ideal for burying dreadful tidings – a temptation some companies find difficult to resist. SnackTime's figures should be impressive – an exception to the rule. Probably the mechanics of the placing forced the Christmas Eve announcement.

The portfolio alighted on the shares at 119p. They subsequently reached 135p and then relapsed to 111p. The price rallied to 145p before internet tipster Tom Winnifrith on t1ps.com added to the momentum with a buy recommendation that sent the shares to around 185p.

With the placing fixed at 170p, SnackTime must be grateful for the Winnifrith involvement.

yourmoney@independent.co.uk