No Pain, No Gain: The Kayes serve up another irresistible offering
Saturday 01 May 2004
The Kayes surely deserve to be regarded as master restaurateurs.
The Kayes surely deserve to be regarded as master restaurateurs. I am happy to report that the family's fifth eating-out venture since I arrived in the City is showing signs of becoming as successful as its predecessors. Prezzo, as the latest operation is called, has swung impressively into profits and looks set to produce appetising results this year.
My interest in the Kayes is not confined to their culinary ability. Since November, Prezzo has been a constituent of the No Pain, No Gain portfolio. I bought shares at 69p; they are now 95p.
The company ended last year, when it achieved profits of £470,000, with 26 outlets; eight have opened so far this year and a further six are expected to be in business before the year's end. Such a rapid expansion programme must produce casualties. The £470,000 profit was struck after accommodating a £740,000 loss on the sale of four restaurants that did not come up to scratch and a £130,000 impairment provision. I suppose a restaurant chain that is expanding so aggressively will inevitably descend on a few duff sites. Its willingness to quickly acknowledge its mistakes speaks volumes for the management's focused approach.
I came across the Kayes in the 1960s when they launched, with a razzmatazz that would be impossible today, shares of their Golden Egg chain on the stock market. In those days the stock market really was a market, with brokers and jobbers eyeballing each other on a trading floor. Besides the occasional eggshell on the floor, Golden Egg started its first day of City life with jobbers attired in chef hats and aprons and waving frying pans. Some of the dealing brokers were also suitably garbed. Golden Egg, a sort of upmarket greasy spoon chain, was eventually taken over, leaving the Kayes to develop another venture, City Hotels, which, despite its name, had restaurant interests.
Then the Garfunkel chain (now part of the Restaurant Group, better known as City Centre Restaurants) kept them occupied before they switched to Ask Central. Ask is currently being swallowed for £213m by the private equity firm that owns the rival Pizza Express chain. The Kayes and outside shareholders have reaped rich rewards from each excursion.
Now, with Jonathan Kaye in charge, Prezzo is the family's only stock market venture. Like Ask, it has an Italian flavour. The Kayes have pumped money into the business since it arrived with just four restaurants at 50p a share two years ago. It is well-positioned to support its growth ambitions, although more money-raising exercises may be on the menu.
Jonathan Kaye, a cousin of Adam and Samuel Kaye (the men behind Ask), is clearly as at ease with figures as he is with pasta. Last year Prezzo lifted margins from 3.1 per cent to 13.6 per cent, which was still below the Ask level, but moving in the right direction. With the stockbroker Evolution Beeson Gregory predicting profits of £2m this year, the shares are on a fancy rating. There is many a slip 'twixt cup and lip, and Prezzo still has a way to go to justify the exuberance of its supporters. But I am happy to be one of them.
Stagecoach, the bus and train group, is another portfolio member enjoying a bullish run. Trading is running ahead of expectations and it looks as though profits will emerge around the £110m mark, £6m above earlier hopes. It plans to hand back £250m to shareholders, probably through a special dividend. The group has staged a remarkable recovery. Eighteen months ago its future seemed behind it. But Brian Souter, the chief executive, has carried out a splendid restructuring exercise. The shares are about 86p, against my buying price of 80p and the dismal 10p hit when it seemed to have run off the road.
Stagecoach was a bet against the crowd. I was, of course, tempted to sell when the shares were in the dumps. Because each portfolio constituent represents a £5,000 investment I was barred from taking another option - averaging down. So I sat tight, illustrating that patience does occasionally have its reward. When I calculate the portfolio's performance I ignore dividends and dealing costs. However, a special dividend would have to be taken into consideration. I would probably add it to the portfolio's cash assets.
Finally Wyatt, the little online risk consultancy. It has raised £550,000 through a share placing. The cash is wanted for working capital. I am still hopeful it will soon hit the takeover trail with one, possibly two, acquisitions.
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