FORSYTE
As Wall Street falls, time to give thought for food
JOHN HOWARTH
hat 60-point fall, followed immediate- ly by two 30-point tumbles, on Wall Street this month has probably done the small shareholder a bigger favour than he or she realises. Shares really can go down as well as up. If the reversal has done nothing more than impress this upon the investor's mind it will have served its purpose.
I say that because immediately after the setback yet another small, food-related Unlisted Securities Market share issue failed. Only 30 per cent of the 5.45 million shares offered in M6, a cash-and-carry business situated alongside the famous motorway, were taken up. Stockbrokers to the issue, not surprisingly, blamed the lack of interest on the general market setback. That excuse/reason may, or may not, be valid. Either way, the outcome of the M6 launch should serve as a reminder to would-be shareholders that you really do need to discipline yourself when these tempting little nuggets are dangled before your eyes. The implication in the stock- broker's reasoning was that but for the Wall Street and London setback, the offer would, if not fully subscribed, have been taken up to a much greater degree.
There have been too many USM offers lately where the risk (particularly for the smaller private shareholder who has been gee'd up by one or two dramatically over-subscribed issues and by the atmos- phere of frothy excitement I have men- tioned here more than once) far outweighs any potential reward. Some of these — like Mrs Field's Cookies — were so transparent that virtually anybody could have seen through them. After all, if a fledgling American company felt it couldn't have got a decent response from its own market and had to come over here (braving all those bombs) to raise cash via a USM listing, then there had to be something curious about it.
Others, however, were more tempting and fingers were burnt. I am thinking in particular of Whitworth's Food Group, which was brought to the USM at 95p per share in the spring of 1985, was many times over-subscribed, and immediately went to well over £1. As recently as January this year the sponsoring brokers issued a furth- er buy recommendation at just under £1 — concluding with the words: 'The shares now look an attractive proposition on a medium term view.'
Shareholders might have felt a little miffed, therefore, when only a few months later the chairman and his fellow directors, who had retained sufficient shares to con- trol the company, accepted a bid from Booker McConnell at 45p per share. (In- cidentally, haven't Bookers done some nifty deals recently? That sale of Budgens to Barker & Dobson was nothing short of miraculous — unless, of course, you bought B & D just before the suspension at l9 ½p and ahead of the 12p rights issue!) Companies such as Wold, E.T. Suther- land, and Bio-Isolates have also given their shareholders, shall we say, an interesting ride this year. One reason that catering and food-related companies feature so fre- quently in these USM offerings is that it takes comparatively little capital to set up a small, specialist food manufacturing busi- ness. Some catering knowledge, a bit of culinary or dietary experience and you're in business supplying local traders or can- teens with some hand-made goodies. Then the business starts to grow and finds it needs more capital if it is to continue. So the rush to go public.
There are signs that with the sudden sharp fall in the market this month, with the Government shilly-shallying over water privatisation, with Mr Kinnock's seques- tration threats over British Telecom and British Gas, and with a couple of failures or semi-failures in recent flotations, there is a cooling of the ardour among those wishing to get rich quick.
I hope so. More than ever when markets are high and nervous — and when we have had 14 years of more or less sustained rises — investors should ask themselves a few simple questions before going into the USM, such as: Why is this company coming to the market? Is it genuinely interested in building a long-term business, with all that implies, or are the principals looking to make a quick return from their efforts?
(ii) What is the asset backing per share? I know some businesses describe themselves as 'idea' or 'concept' companies, but there's nothing like a few real assets to help you sleep at night.
(iii) What is the competition like? What is the customer list? Is the market for the product really there, or are we looking at another Hoola-Hoop (the toy, not the suc- cessful snack), Guinness Triple XXX, or Sinclair electric car?
If you like food companies, and many private shareholders do because they see them as an extension of their own lives, you may take comfort from the knowledge that history tells us that when stockmarkets are uncertain, food manufacturers come into their own because of their strong defensive qualities. In other words, 'people have to eat'. But it pays to be in the best big and strong ones; just because the USM is there it doesn't mean you have to chance your arm on it.
There is an element in share buying which is not far removed from the greed that persuades punters to have a go at the three-card trick in Tottenham Court Road, or to accept that snip at a price which cool commonsense tells you is just plain stupid. In the market conditions that obtain today this is an element that must be resisted. If you're in shares that depend on all-time market highs to sustain them, then, chances are, you're in the wrong stock. (i)
Previous page
