No Pain, No Gain: MacLellan will get the respect it richly deserves

The stock market moves in mysterious ways. If it were not so unpredictable the millionaire count would stretch into the stratosphere.

The stock market moves in mysterious ways. If it were not so unpredictable the millionaire count would stretch into the stratosphere. During my absence what seemed like a strengthening recovery was extinguished by the terrorist atrocities in Madrid and a revival of international tension. There seems little doubt that we are in for a nervous run, with even the occasional sneeze in certain quarters likely to send some investors running for cover.

I am not, however, focusing this week on the big picture. It is the attitude adopted towards some small-caps I am questioning. For example, it is a mystery to me why shares of MacLellan, a facilities management group with a splendid profit record and encouraging prospects, attracts so little support. On Monday it rolled out a 27 per cent pre-tax profits advance to £3.3m and lifted its dividend by half to 0.75p a share. Earnings per share were up 14 per cent. Yet, admittedly on a day when the stock market was in ragged retreat, the shares hardly stirred.

It could be argued that the shares looked exceedingly cheap before the figures; to my mind they are now in the bargain basement. I could be accused of being biased: MacLellan has been a no pain, no gain portfolio constituent for more than two years. And a gain from 65.5p to 71.5p is not the sort of performance any share tipster can enjoy. I suppose I can draw some comfort from the simple fact we have not lost money. But, quite frankly, I believe MacLellan has been given the investment cold shoulder unjustifiably.

Yet its institutional following is growing and it has had no trouble raising funds for acquisitions. I lunched with John Foley, the chief executive, this week. He is, not surprisingly, puzzled by the stock market's indifference. It could stem from MacLellan's unrewarding past. But those days are long gone as Mr Foley and the chairman, Bob Morton, a serial investor, have transformed the group into a facilities business covering almost everything from window cleaning to security. The spread of interests is creating increasing opportunities for cross-selling, and with a growing portfolio of major customers there are tantalising prospects for further growth. Pre-tax profits of around £4.1m should be comfortably attainable this year.

As an acquisitive company, MacLellan is trapped by goodwill write-offs. They cost £2.2m last year and a similar amount is likely this year. Before these non-cash charges, profits last year would have been £5.5m with £6.5m in sight this year. I believe the stock market will eventually give MacLellan the respect it so richly deserves and I intend to stick with the shares.

Other constituents have regaled investors during my absence. Glisten, the confectionery group, has put through its third acquisition and interim profits rose 11.5 per cent to £950,000. Sales were running 18 per cent ahead in the first nine weeks of the current half-year.

The builder Galliford Try has also produced an encouraging interim report. Profits rose from £3.5m to £9.6m, and more than £20m should be achieved in the full year. Like other builders, the group has drawn encouragement from the Chancellor's readiness to increase the nation's housing stock. Among others Profile Media sharply cut its losses and little Wyatt seems near an acquisition.

Printing.com, the last recruit, has not exactly covered itself in glory: shares are now 28.5p against my 31.5p buying price. Still, the long-awaited review from the analyst Roger Hardman has appeared; it makes encouraging reading.

I am, however, aggrieved at the way shareholders of Safeway, the company replaced in the portfolio by Printing.com, have been treated following the successful Wm Morrison takeover. The price, due to political interference, was far too low. And just to add insult to injury, Safeway shareholders have suffered from an unnecessarily slow bid schedule. The deal was completed on 4 March yet it was not until this week that the cheques and/or Wm Morrison share certificates were posted. Surely in these hi-tech days cash and certificates could have been dished out more quickly.

Finally, Urbium. Despite their strong run the shares are still cheap, and there is little doubt Urbium is one of the best-run drink retailers in the land. But with London on terror alert it is probably unwise to buy shares of a group with a high London West End exposure. So I am postponing any action until we see how the western world absorbs the latest primitive barbarity.