No Pain, No Gain: A new name, but has Hartford really changed?

At long last Hartford, the London wine bar chain, appears to be ready, willing and able to escape the hangover days which have tormented it for much of the eight years it has been a constituent of the junior Alternative Investment Market (AIM).

Long suffering shareholders, who have seen much of their capital eroded, have reasons to be cautiously optimistic as the group shows signs of emerging as a successful retailer. But they should not get carried way. The business is not yet out of the woods.

I have closely followed Hartford's fall from grace and its revival efforts. For the company almost became a member of the no pain, no gain portfolio. One of my early recruits was an Ofex-traded restaurant group, Montana. It ran upmarket American-style outlets and was regarded as the ideal complement to Hartford, a hyped fledgling making its way in the eating-out business.

Nigel Wray, the serial investor who was then Hartford's chairman, offered £13.7m in shares. At one stage the deal priced Montana at 340p a share. I, grabbing some of the luck any investor needs, opted to sell in the market, thereby resisting the temptation to accept shares and letting Hartford replace Montana in the portfolio. We did not, however, collect 340p a share. Hartford shares quickly showed signs of stress and strain. When I sold the bid price had fallen to 285p, giving a profit of some £2,800.

Since then Hartford has had a sobering time. The highly publicised but ill-starred Pharmacy restaurant at Notting Hill, acquired for £3.4m just ahead of Montana, is no more. And only one Montana restaurant, the excellent Canyon at Richmond-upon-Thames, is still in the group. A move into gastropubs failed to yield much cheer.

New management has battled to overcome the earlier disasters. Stephen Thomas, founder of the Luminar night-club and bars chain, is chairman. James Kowszun, once with the failed SFI pub group, is chief executive. They concentrated initially on bars, particularly wine bars. Their first significant deal was the £4.8m acquisition of the Jamies chain; then came a number of smaller wine bar take overs. In September, just after the group's financial year closed, it undertook its most ambitious venture yet, swallowing Henry J Bean, another US style operation, for £5.8m.

Today Hartford has 44 outlets, mostly in the City and West End of London. The Bean take over took it into the world of franchising and it looks as though it will develop this increasingly popular concept.

In its last year Hartford produced profits of £1.2m. But once interest, tax, depreciation, amortisation and reorganisation costs took their toll the group was £19,000 in the red. Sales were up 10.4 per cent to £13.3m, not a bad achievement in view of the London bombings. In the current year the group seems to be doing well with a record festive income. Turnover this year could hit £20m and although special charges will continue to impact there are hopes it will make a pre-tax profit of around £1m.

With its relative success in the past couple of years Hartford now wants to be a "real" company and is anxious to cast a veil over its less than glorious past. One of the first steps in such an exercise is a new name and Hartford has opted for The Food & Drink Group. It is also tidying up its balance sheet and share capital. It overflows with no less than 545 million shares - mainly a legacy of desperate cash calls and overpriced acquisitions. A massive consolidation is proposed - wait for it, a staggering 136 shares for every one held.

In the past few years there is no doubt Hartford has done the right things. I am not too happy about the new name and I feel the share consolidation is too severe. It must not be overlooked that there are many examples of shareholders losing out when a capital revamp has failed to have the desired effect. Certainly I would not rush to buy the shares, now around a year's peak of 1.25p, while they are still in the penny dreadful class. Hartford, with a stock market value of £6.9m and debts of £9.2m, is still a pretty risky call.

Two current portfolio constituents pleased the stock market. DataCash, an online payments provider, and MacLellan, a support services group, have proffered updates that indicate trading is in line with expectations. But, as expected, shareholders are unlikely to get much joy from publisher Profile Media, which is attempting a creditors' voluntary arrangement (more about my basket case next week).

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