Here's a Mears bargain at 23p

Shares of Mears, which provides building maintenance services, are riding at their all-time high at 23p. They are still undervalued.

Shares of Mears, which provides building maintenance services, are riding at their all-time high at 23p. They are still undervalued.

Last week the AIM-traded group reported record profits, up 30 per cent at nearly £1.1m and seem set to hit £2m this year. There was also a final dividend declaration - 0.4p a share, making 0.5p for the year, a 25 per cent improvement.

Yet, although the shares have been belatedly hoisted to a peak, the present rating is far from glamorous. They are selling on an unflattering level of not much more than six times prospective earnings, which surely fails to reflect the group's upbeat trading prospects, the reliability of its core business and the possibility of takeover action.

Mears is small, its capitalisation is around £10m, and it is in an unfashionable stock market sector; times will change. There is a new and powerful reason for looking at Mears and other AIM-traded companies, which seems to have been missed by many market followers. In last month's "Dear Prudence" Budget, the Chancellor Gordon Brown provided unexpected encouragement to investors in AIM shares, giving them for the first time a kinder capital gains tax regime. This should be worth millions to investors and increases the attraction of AIM-traded companies.

The company, which could enjoy a £70m (£47.5m) turnover this year, gets much of its income from providing maintenance services to local authority, social housing and Ministry of Defence housing estates. If a tenant wants a window repaired or roof tiles replaced, a Mears man is likely to be doing the job.

The chairman, Bob Holt, says: "These sectors provide the group with long-term contracts with organisations unlikely to encounter financial restrictions in periods of economic downturn."

A £6m five-year contract has just been clinched, and there is plenty of room for growth. Last year's figures included afour-month contribution from a loss-making rival, Haydon, taken over for £1.3m.

Mears, which reckons it is now involved in only 3 per cent of the nation's council housing stock, should be able to reap rich rewards from the Haydon deal in the next year or so.

The possibility of a takeover strike never seems far away. The group has had talks with possible predators, one an European utility operation.

Mears, I believe, will make a rewarding addition to my no pain, no gain portfolio which, I stress once again, is a long-haul exercise. The turmoil in the new economy shares is not a major influence on the portfolio's performance.

One old economy portfolio constituent, the Paramount pubs chain, has rolled out encouraging interim profits, up 36 per cent to £321,000. The group held its sales and margins although it seems to have "lost" a few of its pubs, with its estate standing at 146.

Paramount has made spectacular progress from the disasters that nearly overwhelmed it some years ago, but the company, as its management acknowledges, is too small.

The problems might have been over when it arranged to manage 285 pubs to be owned by the Royal Bank of Scotland. "The geographic, financial and strategic rationale underpinning this proposed transaction was compelling," says the chairman, Michael Lunn. "It offered a unique opportunity for Paramount to upsize its business and enhance shareholder value."

But the Stock Exchange killed the deal, decreeing a class one circular should be produced, containing three-year audited accounts for the pubs. "The information did not exist and any trading information was viewed as commercially sensitive by the new owners," says Mr Lunn. Paramount being unable to meet the requirement the deal was abandoned. "This was a great disappointment," says Mr Lunn. Trading continues to improve but without "some form of significant corporate activity the group's profit momentum cannot be maintained indefinitely".

Paramount, which attracted an unsuccessful bid approach last year, is busily examining its options. It needs to buy another pubs chain or agree a takeover by a bigger rival. In the gossipy drinks industry Burtonwood Brewery has been the favourite to swallow Paramount, which operates community pubs rather than trendy high street outlets.

Paramount shares arrived in the portfolio at 15p. They have since hit 44p but the Royal Bank setback and the failure of the bid to materialise has stripped away the froth and they are now 20.5p.