No Pain, No Gain: Prezzo's off the menu as diners tighten their belts

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The No Pain, No Gain portfolio has, at least for the time being, enjoyed its last meal at Prezzo, the successful Italian restaurant chain backed and run by the entrepreneurial Kaye family.

The shares have slipped below 60p, thereby triggering the sell order I placed on them. With the price hovering at around 60p (at the time of writing), I was tempted to ignore this display of inconsiderateness. But the order had been placed, so I really had no choice; the shares had to go. They were captured at the equivalent of 17.25p four years ago.

At one time the price approached 100p at which point, in an ideal world, I would have sold. Even so, the portfolio has achieved a handsome, if something of a Chinese, profit.

Worries that the credit crunch will force customers to cut back on their eating-out spending have hit restaurant shares. The leader of the pack, The Restaurant Group, running the Frankie & Benny's and Garfunkel's chains, has had a bruising time. Its shares have fallen from 374p to around 220p. So Prezzo, although surrendering some of its exuberance, has not suffered unduly with a 34p retreat.

Mind you, there has been no indication from the Italian chain that it has felt the impact of any penny-pinching. Its interim figures, published in September, showed pre-tax profits up by 48 per cent at 4.7m, and the chief executive, Jonathan Kaye, said he was "confident of a positive outcome for the year".

The group has expanded rapidly, and in September it had 112 restaurants with another seven in various stages of preparation. The Kayes, of course, are old hands at the eating-out game. They have produced a succession of rewarding restaurant concepts, ranging from the Golden Egg chain in the 1960s to the Garfunkel's side of The Restaurant Group. Another of their creations is Ask. Besides Prezzo, they are currently involved in the Tasty restaurant business and have a substantial stake in Gourmet Holdings.

I regard Prezzo as a well-run operation, and if the shares continue to decline I may well be tempted back into them. The portfolio has enjoyed some success with the dining-out industry over the years and I am, in spite of worries of a spending slowdown, keen to remain involved in it.

Groups that have so far failed to deliver could provide interesting challenges. Gourmet has been removed from the menu of many investors because of an unsuccessful and rather expensive dalliance with gastropubs. It now runs the small Richoux chain and has moved into Italian patisserie cuisine. New management has been installed.

Fishworks, the seafood chain I discussed last month, is another candidate. However, I would like to see some signs that financial performances are improving before chancing the portfolio's cash.

Putting sell levels on shares is not a habit I like to indulge in. But the weakness many small caps are enduring, and the general stock market turmoil, have forced my hand. Many tipsters use the stop-loss system, whereby a share is sold when, say, it drops 20 per cent below the buying price. I have always resisted pursuing such a defeatist policy.

After all, a number of portfolio constituents have slumped after I descended on them, but in most cases they went on to recoup their losses.

My variation of the stop-loss technique is simply a bid to protect at least some of the profits achieved. The memory of City of London Group, bought at 117.5p and sold at 46p, still haunts me. In between those two extremes, the price of the investment and public relations group that flirted with the internet topped 900p and I still have difficulty explaining my reluctance to sell.

I have imposed sell prices on two other constituents Goals Soccer Centres and Myhome International. Goals collected a 300p score when I slapped the 60p minimum on Prezzo. Myhome is a more recent recipient.

The shares have been weak lately, although the portfolio is still in the money. I want it to remain well endowed and have with some reluctance because such action can send out the wrong signal put a 50p sell price on the shares.

I believe the current Myhome weakness is likely to be temporary. But with a 15.5p buying price and a recent peak of 106p, I decided that discretion was the better part of valour. These are difficult times, and any profits could easily and quickly evaporate.

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