Gardening gurus tell us that autumn is the best time to prune unruly plants. But the Babes in the Wood investment club have applied this rule to their portfolio.

The Derbyshire-based investment club has cashed in a quarter of its shares since we visited it last month. Barry Wilkinson, club treasurer, says: “There were various reasons why we decided to sell each share, but we really wanted to get rid of all the dead wood.”

Pruning their stocks was an expensive operation. They sold three shares — Elementis, the chemical company, Turbo Power Systems, the renewable fuels group, and GW Pharmaceuticals — at a loss.

GW Pharmaceuticals develops cannabis-based drugs for multiple sclerosis and cancer patients. But the AIM-listed company has encountered difficulties in obtaining UK approval for Sativex, an under-the-tongue spray to treat spasticity, or stiffness and spasms, in MS patients.

Barry says: “We thought that GW Pharma’s share price had been a bit stagnant over the past few months, so we decided to sell. We also think that we have missed the profit on Turbo Power Systems, and though we have been keeping a watch for further movement, it now looks unlikely and the trend seems to be downward.”

Despite shouldering some heavy losses on these companies, the Babes were able to bank a healthy profit by cashing in their Corus shares. They made a 52 per cent gain, selling at 465p. “We feel that the price will not move much in the next three months because of the offer from Tata Steel.”

Corus’s share price leapt when it emerged that Tata Steel, the Indian steel company, was considering making a bid for the company (see panel opposite).

The Babes are biding their time before they replace the shares they have sold. But they bought shares in one new company this month, Private and Commercial Finance Group (PCF), an AIM-listed company that finances cars for consumers and equipment and vehicles for businesses.

PCF has had a difficult few years. First, it had an onerous legal battle with NIG (National Insurance & Guarantee), a loan insurance agency, which declined to pay insurance claims due to PCF in 2003. PCF won, and received millions in compensation. But Hanson Westhouse, PCF’s nominated adviser, says that this “proved to be small recompense for the disruption that it caused to the business”.

There was another stumbling block when Karma Cars, the consumer-finance division that PCF set up in September 2004, closed. But Hanson Westhouse says that the company is forecast to move into profit in the 15 months to March 2007 despite the most recent figures showing that pre-tax losses increased from more than £1.5 million in 2003 to £3.8 million last year.

Barney Gray, of Hanson Westhouse, says: “In the past year both of their core divisions have been performing well.”

The business is too small to have attracted the attentions of any analysts apart from Hanson Westhouse, its nominated adviser, and Seymour Pierce, the house broker. But despite the difficulty in getting information about it, the Babes were undeterred. “After all,” says Mr Wilkinson, “You have to speculate to accumulate.”

Club sell: Corus Steel

A bid is exciting for anyone with shares in the target company, writes Magnus Grimond. Generally speaking, you become richer overnight. In the case of Corus investors, when its Indian rival Tata Steel revealed last month that it was considering a bid, they made a one-day gain of 16 per cent.

Since then, things have only got better. By the time Tata published its terms — 455p a share in cash, valuing Corus at £4.3 billion — the share price had at one stage topped 505p. A good return for a company whose shares had been the equivalent of 19p in 2003. The price has dropped back, but remains above the 455p Tata offer because some people think the Indians will be gazumped. Yet on “fundamental” valuation measures, such as price-earnings ratios and dividends, the offer looks pretty full to many City analysts.

Andrew Snowdowne, of UBS, believes that the Tata bid provides something of a floor for the share price. “Without a bid,” he says, “you would argue that the shares would be trading below 455p. A counterbid is a possibility, but unlikely in my view.”

Since the outlook for steel prices looks weaker, now is a good time to lock in profits. And given the limited prospects for a rival bid, selling in the market looks sensible. So the club has probably made the right decision.

For more investment articles visit www.timesonline.co.uk/invest

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