No Pain, No Gain: A great little success that keeps on growing
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Your support makes all the difference.Playing the small-cap investment game can be fraught with danger. The No Pain, No Gain portfolio has suffered some acute setbacks. Witness my discomfort over Lennox and Wyatt, and such past humiliations as Profile Media. So, perhaps I can be forgiven for applauding the progress of little Myhome International, the growing and increasingly profitable multi-franchise group.
The shares were recruited in July last year at 15.5p; they have recently broken through the 60p barrier. Under the direction of chief executive Russell O'Connell, the company is making dramatic progress. Next month, it expects to celebrate a round of hectic expansion by switching its shares from the fringe Plus Quoted (formerly Ofex) market to the Alternative Investment Market (AIM). The move could herald more aggressive expansion.
Myhome is raising £4m by placing shares (at 40p a time) with investment luminary Nigel Wray, sometimes called Britain's Warren Buffett, and Stephen Hemsley. Wray has a wide spread of interests, including Domino's Pizza, the successful AIM-traded franchise chain. Hemsley is Domino's chief executive.
I understand that other Domino's executives have acquired shares. Accompanying warrants could produce a further £3m. The sale means that Wray will have 15.4 per cent of the enlarged capital and Hemsley 5.6 per cent.
Messrs Wray and Hemsley have a bargain. They were in the money even before their involvement was announced. When the deal was struck, Myhome's shares were around 45p. So the discount was not then breathtakingly large. Much of the subsequent progress must stem from Wray's involvement. Although their injection will help expansion, the ambitious group, with £600,000 in the bank, was not in urgent need of a cash infusion. Still the pizza men's undoubted franchise experience should strengthen the already impressive Myhome management.
The company is O'Connell's creation. He merged his own residential cleaning business with a carefully researched and computerised rival developed by Unilever. The detergent behemoth lost interest after spending, in small company terms, a fortune developing an IT franchising operation. It still has shares in Myhome, issued when it sold out. There is no doubt that Unilever's sophisticated computerised system has provided Myhome with invaluable infrastructure.
It has allowed it to expand its home-cleaning operations and buy other franchise businesses. Besides residential cleaning, the group undertakes grass cutting, oven and car cleaning, and kitchen and bathroom refurbishment. It has about 300 franchisees; in three years it expects the number to top 700.
Profits in its last financial year (to end September) should emerge at about £950,000, against £177,000 in the previous 12 months. Researcher Equity Development suggests some £2.6m is likely this year.
But the current year forecast could easily be overtaken if Myhome adds, as I expect, to its armoury. The acquisitive group feels its IT back-up would have no difficulty accommodating other franchise businesses. Indeed, it believes such activities as carpet cleaning, plumbing and security are among occupations it could comfortably absorb. And opportunities for cross selling could be enormous.
The group, moving into a £1.25m freehold headquarters at Esher, Surrey, is emerging as a powerful force in the booming franchise business. I think it will continue to make progress. But after such a breathtaking run, any investor who followed the portfolio into the shares should think about top slicing, locking in some profits. Selling half a holding would produce a handsome windfall.
The portfolio, however, is not cashing in. Either I sell the lot or stick with my original involvement. I am happy to sit with Myhome. Even at 59p, the price as I write, the shares are selling at less than 12 times this year's projected earnings. And the shares should enjoy a much higher profile after the switch from the old Ofex market. Of course, such a rapidly growing operation could slip up. But Myhome's management has so far not put a foot wrong.
Finally, another portfolio franchise constituent, Printing.com. It is overcoming a trading downturn and the shares, at 50p, have recovered some lost ground. More about the online printer next week.
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