John Lee: My pet project for 2010

January has been a month of considerable activity. Just before the snows, I spent the day with Ken Greetham, chief executive of Wynnstay Group, the Alternative Investment Market (Aim) company.

I have a holding in Wynnstay shares that I
had been building up. The company was originally an agricultural co-operative – but is now a £36m capitalised, broadly-based animal feedstuffs group.

I particularly wanted to see the retail division. Wynnstay now operates 28 Country Stores and 15 Just for Pets stores, with a 16th opening soon. It aims to add three or four new stores each year. We visited the Stafford Country Store and then the new Pet Store in Burton-on-Trent.

In market share terms, Wynnstay’s pet retail chain is the fifth largest – small by comparison with the 250-strong Pets At Home chain that has just changed hands for £950m.

I always find it fascinating to compare a small operation with a much larger one and, even taking a very conservative approach to valuation, it is clear that Wynnstay has a valuable jewel in its network of stores. I like its pedigree!

While in Burton, I also called in on another Aim company in which I have
a shareholding: the £12m- capitalised Northbridge Industrial Services.

In broad terms, Northbridge is a mini version of Aggreko, the power generator rental group. Its subsidiary, Crestchic, designs, manufactures, hires and sells “loadbank” equipment, which is primarily used for the commissioning and maintenance of independent power sources.

Although it is relatively little known and conservatively managed, the company has been growing organically and by acquisition. It is also relatively good value. Northbridge’s shares trade on a price/earnings (p/e) ratio of 6 times, and pay a very well-covered dividend that gives a 3 per cent yield. These fundamentals compare favourably with the highly-rated Aggreko, which trades on a p/e ratio of 17.5 and offers a 1.2 per cent dividend yield.

Of course, Northbridge is embryonic and tiny in comparison. But taking everything into account, I suggest it deserves to trade on at least eight times earnings. On that estimate, the shares are one-third undervalued. So I bought some more at 140p each.

January’s other transactions included realising my modest profit on Cadbury, following the increased bid from Kraft – it covered the cost of my March Tweed salmon fishing week!

I also picked up a decent holding in Cable & Wireless, for my individual savings account (Isa), on a 6 per cent yield – prior to the group splitting into two quoted companies. I would be surprised if either one or both parts were not subsequently bid for within the next couple of years.

At the same time I “sold” both S&U and Town Centre from my main portfolio, and bought them back into my Isa. I judged it prudent to realise these two profits, potentially incurring capital gains tax (CGT) at 18 per cent – even though I have losses brought forward – given that there is a real risk that CGT will be increased in the Budget. In addition, the very attractive and secure 7 per cent S&U yield will henceforth be tax free in my Isa.

News of my other holdings has been predominantly positive: City heavyweight Bob Wigley came in as chairman of Sovereign Reversions and immediately bought shares; directors bought at Gooch & Housego; dividends were raised at Pressure Technologies, PZ Cussons, Treatt, and Wynnstay, and there were encouraging trading statements from T Clarke and Nichols. All in all, a pleasing start to 2010.

John Lee is an active private investor writing about his own investments. He may have a financial interest in any of the companies and trading strategies mentioned.