Derek Pain: Hunger for action satisfied by a little Snack

No Pain, No Gain

Confidence is a fragile flower but it seems to have taken root in the City. The stock market has made surprisingly strong progress already this year, yet optimism abounds that further near-term headway is achievable.

Take, for example, the comments of Jeremy Smith, who heads the UK equity operations at Neptune Investment Management. He reckons "people have been too negative for too long" and have underestimated just how quickly the UK is recovering. The FTSE 100 share index, he says, could hit 5,500 points "in short order". There are doubters, of course. Some expect, at best, a sideways movement; others suggest a sharp sell-off is inevitable.

What I find exhilarating is that so many cheerful souls are prepared to voice their forecasts. They are not afraid that events could provoke a Michael Fish moment and demonstrate their predictions to be utterly wrong.

Although I do not agree with the more joyous forecasts, I salute the bravery behind them nevertheless. If events do not, for example, follow Smith's perceived pattern then he is bound to suffer the slings and arrows that unlucky prophets are destined to endure.

Still, as I remarked last week, the current confident mood has helped the No Pain, No Gain portfolio to record its best performance for some while. Indeed, I was becoming quite depressed by the continuing erosion of its profit that had dwindled from near £150,000 to £77,000 earlier this year. At last week's count the gain was more than £96,000.

During the stock-market retreat, I recruited more largish companies than had been my custom. I felt size offered more security. And with my four up-market, fully listed stocks all making progress, I suppose my policy was justified. But I did not neglect small caps, recruiting three. Unfortunately only one, Clarity Commerce Solutions, has set the pulse racing, climbing from 29.5p to 48p at the time of writing.

Until the stock-market meltdown, the portfolio had actually concentrated largely on small caps. So, with shares appearing more confident, the time has arrived to recruit another little 'un. I said last month that SnackTime could be added to my notional portfolio and the shares have been recruited at 119p.

In response to my comments, the shares rose to 133p. They have since relapsed. I felt obliged to await publication of the yearly report and accounts before descending on the stock. The yearly missive appeared last week. I believe it justified my inclination to climb on board.

Of course, small caps are more risky than up-market shares. The portfolio has already lost more than one shirt backing very junior companies. Witness the losses also suffered on such shares as Pubs'n'Bars, which last week put a 10-pub subsidiary into administration, and GCO2. But, nothing ventured, nothing gained.

SnackTime, a vending-machine group, displays the innovative promise I admire and seems to be a well-run contender for higher honours. Borrowings do not appear to be too excessive. There is also the possibility that a bigger group will see its potential and embark on corporate action.

Hargreaves Services is one small cap that attracted the portfolio before the stock market surrendered. It is now a medium-sized player and, this week, enhanced its reputation with another splendid set of figures. The shares hit a 645p peak as underlying pre-tax profits reached £28.6m and "true" profits emerged 46.5 per cent higher at £26.2m. The year's dividend is lifted from 10.3p a share to 11.8p.

Tim Ross, the chairman, says the group, which has interests ranging over coal mining, transport and waste disposal, views the current year with "significant confidence".

Hargreaves arrived on the stock market almost four years ago. Its quoted record is impressive with underlying compound annual earnings per share up 51.5 per cent. An acquisitive animal, it has the ammunition to continue its expansion with £115m of new banking facilities signed up. Its war chest is now £155m.

The shares have certainly been a sound investment. The portfolio alighted on them at 417p in February, 2007. They did briefly dip below its buying price earlier this year as the recession tightened its grip and the stock market crashed. But Hargreaves appears to be one company to emerge from the horrors that blighted the nation in some style.