No pain, no gain: Fishworks shows that fins ain't what they used to be

The growing taste for eating out has produced some rich returns for many restaurant chains. The No Pain, No Gain portfolio has enjoyed success with its three forays into the dining business, and would be happy to add to what has so far been a profitable menu.

But worries that many of us are tightening our belts as dearer money reduces leisure spending are floating around. There has been some evidence that consumers are cutting back, although the impact on restaurants is far from clear.

Most of the stock-market companies that offer eating-out facilities, ranging from restaurants and bars to hotels and pubs, have in recent years established envious profit records and their shares, until the spending doubts surfaced, have romped ahead.

Fishworks, running a chain of about a dozen seafood outlets, is, however, one that missed the boat. Sales have been quite encouraging, but as far as profits go it has failed to deliver. During its seven years on Plus and then AIM it seemed to hold out the promise of great success. Yet, as investors' cash was swallowed, profits remained elusive. Last month, it served up its biggest loss – £1.5m. Dividends remain a distant dream.

What went wrong? Overexpansion, that old enemy of many aspiring businesses, has much to do with the disastrous record. There are also suggestions that some outlets may not have been in ideal locations. And financial controls may not have been strong enough.

The shares have suffered. A year ago, they were around 50p – as I write, the price is 7.625p.

Yet the concept, many observers believe, should work in this still affluent age of eating out and health consciousness. It is not so distant from the successful recipe adopted by Carluccio's, the Italian restaurant and delicatessen group. Fishworks is not, of course, wedded to Italian fare; it supplements its seafood restaurants by such activities as selling fresh fish and holding cookery classes.

The succulent appeal of Dover sole and roasted skate has certainly encouraged investors. When Fishworks arrived on Plus, it raised £483,000. At the time of the AIM flotation in 2005, £4.4m was pledged. Earlier this year, with the group in urgent need of fresh funds, £2.5m was pumped in. At the same time there was a boardroom shake-up.

Gary Ashworth, a recruitment entrepreneur, became chairman, and in his wake a new finance director and then chief executive arrived. Ashworth, together with Luke Johnson, the Channel 4 chairman, put up much of the rescue money (at 6p a share) and they now account for about 33 per cent of the capital.

Johnson has impressive restaurant credentials with PizzaExpress and upmarket London eateries to his name. Ashworth, too, has restaurant interests. Mitch Tonks, who started Fishworks when he opened a fishmongers in Bath in 1994 and added a restaurant in the rooms above a few years later, remains a director and still plays a major role.

The newcomers are expected to make sweeping changes. Overheads have already been cut, and a review of operations is being undertaken. But, as last month's results indicate, even in the current benign restaurant climate, Fishworks has a long way to go.

At 7.625p, the chain and its wholesale fish arm are capitalised at only £5.7m (compared with sales of £10.7m), and with its intriguing formula, the shares could appeal to investors prepared to fish in the more speculative waters of the stock market.

The presence of the rescuers offers encouragement, and I would not be surprised if Fishworks eventually prospers. However, I would not invest until some positive signs emerge.

The portfolio currently embraces just one restaurant share – Prezzo, running Italian-style eateries. Its shares, as the continuation of the eating-out feast is questioned and small caps in general give ground, have fallen from 94p to around 70p.

Other restaurant constituents in the portfolio have been La Tasca, acquired by Robert Tchenguiz and rumoured to be returning to quoted life as part of an enlarged group, and Montana, now part of the Food & Drink Group.

Despite the share price fall, the portfolio is still comfortably in the money with Prezzo and has scored hits with La Tasca and Montana. However, there was an element of luck with the latter company; its American-style concept was subsequently abandoned, and FDG now largely concentrates on the Jamie's and Henry J Bean bars.

cash@independent.co.uk