Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

PM Group-what a lot of rubbish!

It was interesting to see that the Investors Chronicle tipped PM Group as one of its potential AIM recovery shares for 2006.

The short article points out that PM is not a ‘one trick pony’ and that the ‘acquisition of Pitts Wilson Electrical transformed its performance last year’.

Although the article goes on to state that a ‘bet on PM’s recovery remains risky’ it fails to cover any of the actual events that occurred over the last 18 months that contributed to the fall in the group’s share price and which, more importantly, could be of relevance to any potential recovery.

Having met the management of PM Group approximately 18 months ago we weren’t convinced about the business model. To be honest, the thought of accurately weighing my rubbish each week and asking the refuse collector to administer things just sounded too far fetched and unworkable over a large population-I might be wrong!

We also considered the Pitts Wilson acquisition in June 2005 to be highly questionable. The original excuse given for this was that ‘PM has headroom in terms of manufacturing capacity but is currently constrained by the number of electrical engineers available for fitting its weighing systems’.

Digging deeper into the announcement covering the acquisition revealed that:

- Pitts Wilson is highly reliant on one longstanding major customer that is responsible for over 85% of turnover over the next 2 years. We believe this to be large supermarket group.

- Geoff Mountain (Chief Exec of PM) is both a director and shareholder (of Pitts Wilson), outside his interests and responsibilities at PM Group. The announcement went on to state that the ‘acquisition has the benefit of bringing these interests together into one organisation’. Surely Mr Mountain should have devoted all his attention to struggling PM Group in the first place.

On 23rd November 2005 Mrs Mountain the wife of the Chief Executive sold 350,000 shares in PM Group at 235p per share. Clearly she didn’t think the shares looked very good value!

On 17th Oct 2006 PM Group was forced to put out a statement stating that it knew of no reason for the fall in its share price.

On 15th November 2006 (less than a month later) the Chairman reported that the prospects for the Company for the year ending 30 June 2007 were poor and that ‘due to the problems the Company is facing, the non-executive directors have begun to conduct a strategic review of the options for the Company's future direction, either via a sale or a management buyout. As part of this, they have agreed to allow the executive directors to pursue a possible management buy-out of the Company.’

I find it somewhat fanciful (to say the least) that Investors Chronicle actually considers PM to be a potential recovery story.

With the sort of shenanigans that have been going on over the past 18 months one surely has to question the credibility of the existing management.

We definitely won’t be buying at this stage (and unfortunately can’t short it) but look forward to seeing how things unfold in 2007!


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