Myhome is shaking but the foundations are sound

NO PAIN, NO GAIN

Contrasting profit displays by two constituents of the No Pain, No Gain portfolio have, unhappily, produced the same result - dismal share-price reactions.

Private & Commercial Finance, the hire-purchase group, had the satisfaction of announcing what can only be described as scintillating figures. Its shares promptly jumped before relapsing to record a net loss. On the other hand, Myhome International, the franchise group, offered even weaker results than I had expected. Not surprisingly, its shares collapsed, yet again.

Retaining PCF as a portfolio constituent is, quite clearly, a no- brainer despite that uninspiring share price, which is yet another symptom of the strained stock-market environment. The shares were recruited at 19.5p. With year's profits reaching 934,000 (against 389,000 for 15 months), they climbed 5.5p to 24p. Since then, they have slipped to 17p.

The group is thriving in spite of the credit crunch. Chairman Michael Cumming says it has been around since 1972 and is demonstrating "the robustness of a well-diversified finance house, having survived and prospered through past periods of recession, stagflation and over-exuberance". Further progress should be achievable this year, with profits of about 1.4m possible.

Myhome, with activities ranging from residential cleaning and gardening to vehicle repairs, is a different kettle of fish. When I saw that interim profits had disappeared, replaced by an awful 3.9m loss, my first reaction was to dump the shares. I was aware that the figures would be disappointing, but such a setback was well beyond my expectations. The shares promptly fell from an already lowly 20p to 13p and, as I write, they are 9.75p.

It is clear that the 3.6m profit forecast made by researcher Equity Development earlier this year is now lost in dreamland. The loss stems from reorganisation costs, including redundancies and write-downs. Profits before one-off changes were 480,000, against 740,000.

To pile on the agony, turnover was up by 151 per cent to 4.6m. Clearly there is little chance of a "true" pre-tax profit this year.

Throughout the next 12 months, the shares are likely to represent dead money. The restructuring will not really filter through to the bottom line until next year. Still, I suppose with the company's capitalisation down to 6.2m there must be a chance of a takeover bid emerging.

Myhome has, quite ingloriously, failed to live up to expectations. It has over-promised and underdelivered. At the height of their popularity, the shares hit 106p. The portfolio paid 15.5p, sold at 50p and, rather foolishly, returned at 27p.

Before executing my sale, I went to Myhome's Esher headquarters to see founder and chief executive Russell O'Connell and new finance director Neal Gossage. The result? A dramatic U-turn. I decided, after all, to hold on. I know I will be accused of allowing the Myhome men to sweet-talk me, but although the shares are deservedly down in the dumps, the underlying business seems to be performing reasonably well and a more stringent atmosphere now prevails.

Last year, the group bit off more than it could chew. The 16m ChipsAway takeover took longer than expected and the management was slow to bed down other acquisitions. I hope that it is now all sorted. And, after a dull period, the recruitment of franchisees is recovering and overseas expansion - Croatia and Russia are the latest additions - seems to be moving ahead.

The big worry is the credit crunch. Will Myhome's "cash-rich, time-poor" customers suffer? There must be a chance that some will cut back. And new chairman Jon Pither says it is now more difficult for would-be franchisees to raise cash. Still, 50 have been recruited in the past three months, which means about 1m gross profit.

Myhome has been a roller-coaster ride. I am prepared to go along with O'Connell when he says the business is "fundamentally in better shape than it has ever been". I just wish the deluge of special charges had not come as such a brutal surprise, even if there is a case for enduring them.

Still, in a year or so Myhome could - at long last - start to meet expectations. Analyst Wenyi Liu at Growth Equities & Company Research reckons that profits next year should hit 2.4m - not a particularly outstanding performance given Myhome's shopping spree. Still, such an outcome would probably justify the portfolio retaining the shares. Let's hope that Ms Liu is on target.

cash@independent.co.uk

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