No Pain No Gain: Small can be strong, nimble - and profitable

With DataCash dismissed and MacLellan near the exit, the No Pain, No Gain portfolio is in urgent need of new blood. I have, therefore, decided to alight on IDN Telecom, a little telecom services provider that I have kept in my sights for some time.

My latest recruit is very much a stock market tiddler. It is capitalised at around £8m and its labour force is only 40-strong. Yet its very smallness is also its strength. In an industry dominated by giants it can behave with more flexibility than bigger rivals. And being little - and nimble-footed - allows it to accept relatively modest contracts that major groups would regard as beneath contempt.

When I first encountered the telecom player, I was assailed by two main worries. One was the likelihood of one of those capital reorganisations in which large numbers of shares, say 100, are packaged into one. Such exercises do not impress me. Indeed, I am aware of many incidents in which shareholders have failed to reap any reward from what is often no more than a cosmetic manoeuvre. The other was the habit that former directors had acquired of reducing their shareholdings when any exuberance emerged.

Well, the first worry has been removed. I was recently assured that consolidation plans have been abandoned. And there are signs, although no guarantees, that the share sales have dried up. The remaining overhang represents approaching 12 per cent of the capital and must remain an inhibiting influence.

The company has disclosed interim profits of £501,000 - up 18 per cent - and should achieve more than £1.2m (against £900,000) over the full year. A maiden dividend of 0.025p a share was distributed last year and I would expect the payment to be increased this year. At 2.075p the shares are on a far from generous rating.

Of course there are drawbacks. As with any tiny player in an evolving high-tech industry, a multitude of dangers lurk. But IDN, where directors and friends have 40 per cent of the capital, has cash in the bank and is strong enough to indulge in an expansion exercise. And its low rating offers another possibility - a predatory takeover strike.

IDN is the lowest-priced share I have ever recruited. We have experienced some hopeless penny dreadfuls since the portfolio first appeared in 1999, but they have fallen from more exotic levels. My hope is IDN will trade its way out of the basement. It seems to have the ability and, with its get-up-and-go attitude, should be able to do so without the dreaded consolidation.

The telecom group replaces DataCash, the online payments group. I sold last week at 169.5p (against a 199p peak), locking in a profit of 92p a share. I realise I will be accused of being too hasty, but my action was prompted by the disaster that has overwhelmed the BetOnSports internet gaming group in the United States.

At this stage it is not known whether the Americans are merely targeting BOS, a colourful organisation, or signalling a much tougher attitude towards online gambling which is largely illegal in the US.

Earlier this year DataCash acquired Proc Cyber Services, which provides payment facilities for online gaming. Until the takeover, it was happy to concentrate on offering cardholder-not-present payment services and striving to grab a slice of the chip and PIN revolution. Stock market shrewdies are fond of saying it is "never wrong to take a profit". And with all the uncertainty now surrounding internet gaming, I decided our winnings were too enticing to endanger. After all, my misplaced loyalty to such groups as City of London and Springwood allowed profits to melt away. I do, I believe, have a reputation for selling too early, but it is unwise to take unnecessary risks.

I hope DataCash is immune from any gaming upheaval. Indeed, it may have little, if any, US exposure. But if the Americans are clamping down, then this fledgling and rather unstable industry will be under intense pressure, not just in the US but around the globe. I want no involvement.

Hargreaves Services is another portfolio constituent in action. It is planning to buy Norec, an industrial services group with a turnover of £23.4m and profits of a little over £1m. I expect much of the consideration will be in shares.

Finally, I am still awaiting the MacLellan takeover cash. In the meantime, I think I have discovered a suitable replacement for the support group.