No Pain No Gain: Restaurant chain a bland choice for hungry investors

Prezzo, the Italian restaurant chain that once graced the No Pain, No Gain portfolio, is feeling the bitter bite of the credit crunch. Although the likes of the Restaurant Group and JD Wetherspoon have managed to serve up relatively robust trading dishes, the pasta and pizza business has acquired a lean and hungry look.

Half-year sales, helped by new openings, rose from £32.5m to £41.4m, but pre-tax profit tumbled from £4.7m to £2.9m. True, an impairment charge for four underperforming restaurants did much of the damage, but there is little doubt that Prezzo is finding the going increasingly difficult. Indeed, the company complains that the six months to end June "provided some of the most challenging trading conditions" it has experienced since its foundation eight years ago. And the trading atmosphere has not improved since June.

It now operates from 138 sites, but because of the "uncertain economic climate" the roll-out programme has been cut back.

At 29p, the group's shares are around their year's low point. Only the possibility of a takeover prevents them falling further.

The portfolio arrived at the equivalent of 17.25p. The shares subsequently approached 100p. Then the impact of the credit crisis started to ravage high flying hospitality shares. The portfolio sold at 60p, notching a nice little profit. Even so, I could not help thinking that I sacrificed too much of the gain by not displaying a little more alertness.

Not surprisingly, Prezzo's unimpressive interim figures have prompted analysts to pull back the year's expectations. The group was quick to point out that adjusted pre-tax profit rose by 8.8 per cent to £5.2m. But even that figure was below stock market predictions.

With the group feeling the pinch, profit downgrades were on order with the year's forecasts cut back to less than £11m. Last year's "true" pre-tax profit was £7.7m, down from £8.7m.

The Prezzo display looks even more depressing when viewed against The Restaurant Group, the Frankie & Benny's chain, and Wetherspoon, the pub group where food accounts for around a third of sales. Restaurant Group increased first-half profit substantially and made confident noises about progress in its second six months. And Wetherspoon, although posting lower year's results, sweetened the pill by reporting it had enjoyed its busiest ever August.

The Italian food chain is a creation of the Kaye family, which has an enviable record in developing successful eating-out themes. I first came across the Kayes in the 1960s when they floated a restaurant business called The Golden Egg. I doubt if such a venture would go down well in today's more fastidious and health conscious climate, but what was effectively a chain of up-market greasy spoons was sold off at a handsome profit. Since then, various successful concepts, such as Ask and Garfunkel's, have appeared. Invariably they have been absorbed by takeover marauders with the Kayes pocketing rich rewards.

Besides Prezzo, the family is deeply involved in one other quoted eating out spread: Tasty, specialising in Asian food. But there is a chance that Prezzo's shares could soon be removed from the stock market. Back in May, the company admitted that it had received a takeover approach. It came from "certain members of its board". Presumably, the Kaye family, which controls the enterprise, was intent on taking the chain private.

Talks are, however, taking an awful long time to reach a conclusion. Last week, it said discussions to put together a bid package were ongoing. Raising the cash, no matter how powerful the borrowers, cannot have become easier since the May statement. At 29p, the group is capitalised at around £65m.

Takeover talks have been known to stretch over long periods. But the Prezzo jaw-jaw is looking increasingly forlorn. Indeed, stockbroker Investec Securities has gone on record as saying: "It appears increasingly unlikely that the expected takeover offer will materialise."

With the share price declining and prospects looking less appetising, the case for mounting a bid – and probably taking on substantial borrowings – must look less compelling to the would-be bidders. And if raising the cash is becoming more difficult, I, like Investec, would not be surprised if Prezzo soldiers on as a quoted company. Whatever happens, the portfolio was right to sell. I doubt if any bid will top its 60p selling price.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Smart phones, dumb reading: Rebecca and Harry from ‘Teens’
tv
News
people
News
Amazon's drones were unveiled last year.
business
Arts and Entertainment
Russell Tovey, Myanna Buring and Julian Rhind Tutt star in Banished
tvReview: The latest episode was a smidgen less depressing... but it’s hardly a bonza beach party
Life and Style
Worth shelling out for: Atlantic lobsters are especially meaty
food + drink
Sport
Gareth Bale
footballPaul Scholes on how Real Madrid's Welsh winger would be a perfect fit at Old Trafford if he leaves Spain
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

    Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

    £50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

    Recruitment Genius: Security Officer

    £16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

    Ashdown Group: Business Analyst - City, London

    £50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss