No Pain, No Gain: Restaurant developers repeat their winning recipe

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The Independent Online

Prezzo, a young and fast-growing restaurant chain, has become a star of the No Pain, No Gain portfolio.

Prezzo, a young and fast-growing restaurant chain, has become a star of the No Pain, No Gain portfolio. In recent weeks the shares have touched 168p; they are now 151.5p. I alighted on them nearly a year ago at 69p. It is, however, a case of being grateful for small mercies, as their performance merely allows me to tolerate rather indifferent displays by two other constituents.

Even so, the Prezzo story is remarkable. There is no hint of pie in the sky. Instead, the group has produced interim profits of £1.3m against £305,000 before, and should comfortably top £2m, perhaps £2.5m, for the full year. It has yet to pay a dividend and I would be surprised if one appears with the 12-month figures. But a payment should not be too far away.

At the halfway mark the chain embraced 35 restaurants. It should have about 50 at year-end. And it is not short of cash. Indeed, its interim accounts show an £11.3m bank balance. But its breakneck expansion means it is greedily consuming its reserves. Just as well, then, that £9.3m was raised during the summer in another of those private share placings that are becoming increasingly prevalent. Shares were sold to a selected few at 120p. They included Phillip Kaye, described as a consultant, and the chief executive, Jonathan Kaye.

As a result Phillip's shareholding is a shade over 50 per cent; Jonathan has 14.1 per cent. There can be no criticism of the 120p asking price. But in view of the size of the cash call, I would have thought the placing should have been extended to all shareholders.

Still, it was encouraging that the Kaye family, headed by Phillip, was prepared to pump more cash into the venture. I commented on its profitable culinary abilities when I recruited the shares. During my many years in the City, the Kayes have had a succession of successful restaurant ventures: Prezzo is, I think, number six. Earlier eaterie chains were developed and then sold with outside shareholders doing exceedingly well. My guess - and hope - is that the same recipe will apply again.

The Kayes are not noted for moving into fledgling operations where they do not have control. But Phillip has descended on Gourmet Holdings, which runs three Bel and the Dragon gastropubs and the Richoux restaurants. In the summer he took a 13.5 per cent interest in what was formerly the Madison coffee bar chain.

MacLellan, the support services group, and Wyatt, developing on-line risk consultancies, are the culprits letting the side down. At first glance MacLellan seemed to have produced another scintillating display at the interim stage. Trading profits were up 17 per cent at £2.9m. But then the special charges that afflict so many results these days kicked in. And the true pre-tax figure was down an uncomfortable 57 per cent at £950,000, reducing my hope that it would make pre-tax profits of £4.1m this year. MacLellan is an acquisitive animal. It is currently planning to pay £18m in cash, loan notes and shares (priced at 60p) for First Security, which provides guarding and reception services. Excluding bolt-ons, First Security represents its ninth takeover since it reinvented itself as a support group some six years ago.

Not much was expected from Wyatt. In the event, not much was delivered. The year's loss came out at £501,000 against £279,000. The chairman, Bob Holt, the man behind the highly successful Mears support services group, admits "progress to date has been slower than anticipated".

But he is encouraged, he says, by the improvements that are coming through at the group's operations and by the prospects offered by the still fledgling on-line risk consultancy industry.

Finally, Profile Media. The dog of the portfolio offered more gloomy figures, but reduced losses hold out hope that it is at last on the recovery road. Six-month losses were £1.1m, down from £2.4m in the previous six months. For the year the loss was £3.5m, against £14.7m. Earlier this year, in a desperate bid to recapture some of its old exuberance, Profile reorganised.

It sold businesses and raised £2.3m from shareholders through a traditional cash call (no question of just a selected few being invited to participate this time).

With losses down, it looks as though the medicine is starting to work. The chairman, John Webber, is moderately optimistic, talking about contracted advertising revenue in the current six months being 34 per cent higher than at the same time last year.

Profile remains my most ghastly investment. There is no point in selling - that simple action should have been taken long ago. All I can do is hope that the Webber team returns the group to somewhere near its high-profile past.

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