Derek Pain: 'I'm going down to the dumps to recruit scandal-scarred Serco'

The time is ripe for recruiting Serco to the No Pain, No Gain portfolio. The shares are down in the dumps and I feel that the current valuation – just 98p – makes scant allowance for the recovery prospects of the outsourcing and private security group, which, admittedly, is still struggling.

Last week I mentioned that Serco was among the stocks I was considering for inclusion. The price has given up a few more pence since then and, at the time of writing, the market capitalisation is less than £1.1bn.

Before a series of disasters threatened the group – scandals such as the electronic tagging of offenders who were either in jail or dead – the shares were riding high at more than 600p.

Getting them even near to that level again will be a long, hard haul.

Kean Marden, an analyst at the investment house Jefferies, has a 157p target price. If that were achieved, it would be quite satisfactory in portfolio terms. But I have hopes that in the next few years the price, as the recovery becomes more apparent, will provide a much greater reward.

The City takes a long time to forgive a once high-flying darling that dramatically blots it copybook. But in my view, the failure to acknowledge Serco's full recovery potential, as the depressed share price indicates, offers a fine buying opportunity.

The restructuring of the business has left the shares with a surprisingly high forward price-earnings ratio ,although any dividend yield is non existence.

Leading the recovery is Rupert Soames, a grandson of Winston Churchill, who was recruited from the power group Aggreko. He has already taken a series of tough decisions, getting out of unfavourable contracts and non-core businesses.

The group incurred a huge loss last year, which was accompanied by a £555m cash call at 101p a share.

From a new recruit to one that seems to have been around for ages. SnackTime, a vending machine group that once offered much promise, has been a disastrous investment. The shares, not for the first time, are suspended.

The current freeze is due to issues relating to the reconstruction of the company's balance sheet. As a result, it is unable to produce its audited results for the year to the end March in the required six months.

In such circumstances the exit of the finance director would be unfortunate.

In June Tim James, who has held that position for five years, said he would leave the company at the end of last month. When his departure, to pursue other interests, was announced, the chairman Jeremy Hamer said Mr James had "seen us through some difficult times".

However, the financial chief has had a change of heart. He has decided to remain in his post until SnackTime's audited accounts are eventually published.

Of course, it must have been something of a strain being in charge of SnackTime's finances. The company has been through a distressing time, with the shares crashing from near 200p to the suspension price of 8p as losses piled up.

The portfolio paid 119p.

But for the arrival of the Russian businessman Boris Belotserkovsky, the company's prospects would have been dire indeed. He has pumped cash into the group and now controls more than 50 per cent of the shares.