No Pain No Gain: Struggling as shares fall to their knees at two key holdings

The no pain, no gain portfolio has endured a double blow.

Its two most vulnerable constituents produced horror stories that provoked a share suspension for SnackTime, a vending machine group, and a dramatic share retreat for environmentalist TEG.

The new SnackTime disaster includes another £8m-plus loss, and because its auditors are unable to sign off the accounts, a share freeze. A company must offer audited accounts within six months of its year end, and with re-financing negotiations dragging on SnackTime’s accountants are unable to complete their duties. Hence the suspension.

Chairman Jeremy Hamer pulls no punches about the importance of the financial talks, observing that a “successful conclusion” is “fundamental to our future”. The discussions are with the Co-operative Bank, already a significant contributor, and Versatel, part of Boris Belotserkovsky’s empire which includes Russia’s biggest vending group. The Russian billionaire already has a 26 per cent stake, including a subscription earlier this year at 15p.

Mr Hamer has admitted that sales are running behind last year but maintains new strategies are being implemented. They include greater use of technology, extending the franchise side and, assuming the financial talks are successful, bidding for large contracts which current money constraints have prevented.

The group’s Drinkmaster division was put up for sale but bids fell short of expectations. Plans are now afoot to develop the drink side.

SnackTime has for a long time been the dog of the portfolio. I paid what seems an incredible 119p five years ago for shares that were suspended at 10.25p. At one time the price nudged 200p. Of course I should have sold; I had plenty of opportunities.

But I continued to believe the group, which put through a number of acquisitions, would eventually prove to be a winner. How wrong can you be? There now seems no point in selling what amounts to a much reduced stake that is something of an embarrassment. It has already been written down in my quarterly calculations, measuring the portfolio’s performance.

Now to TEG. Last week I expressed the hope it could still be a winner. But that was before the bombshell that more than halved the shares to less than 2p, a new low. At one time they were around 150p and even five years ago the price was more than 40p. I said when recruiting TEG at 8p three years ago that it was “a bit of a gamble”.

I realise I am in danger of committing the same mistake that I have experienced with SnackTime. But I am reluctant to sell at this stage, although if the situation fails to improve I will be forced into action.

TEG’s problems stem from its contracting side which was largely responsible for half-year revenue halving to £5.6m. Operating its range of composting and energy plants produced profits but developing sites was once again unrewarding. With a loss of £1.2m and cash running low, the group has decided to stop creating and building plants (as cash inflows are unpredictable and lumpy) and instead focus on developing its profitable existing operations.

Particularly upsetting is the group’s cash position, down from £1.7m last year to £288,000 at the end of June. Chairman Leo McKenna does not try to disguise the need for more funding “to secure the future of the group”.

Another rights issue – it raised £2m at 3p two years ago – would be difficult with the shares on their knees. Perhaps some form of borrowing – or – maybe, new investors, would fit the TEG bill.