No Pain, No Gain: Our Man's Portfolio: Chew over a tasty chain

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The Independent Online
THE ONE and only no pain, no gain portfolio share traded on Ofex - the lightly-regulated "off exchange" market - is to disappear. Montana, a fledgling restaurant chain created by Kevin Finch, has fallen to a takeover bid from Hartford, an AIM-listed operation taking in the up-market Pharmacy eaterie in London's Notting Hill. It's an all-share deal which values Montana at around 340p a share, based on the price Hartford shares are being placed.

When the portfolio acquired a taste for the little restaurant chain in March the shares were 182.5p. So a 157.5p a share gain in less than six months is a result. But should I cash in, or stay with the enlarged group?

I recommended Montana because it was an intriguing young company which could have an exciting future. It was started by Mr Finch, a former investment banker who scored by spotting the early potential of nursing homes.

The shares were floated at 35p two years ago. They made steady headway, boosted in April when three prominent institutions pumped pounds 960,000 into the group at 200p a share. The Montana concept of American-themed, up- market restaurants has appealed to the London palate. It has five London restaurants with number six to open next month.

Mr Finch, who will be chief executive of the enlarged group, appears to have felt inhibited by the low-profile Ofex existence and clearly believes a move to AIM will improve the investment image and make it easier to raise cash for expansion. A year ago Hartford, then a traditional shell, acquired the Pharmacy whose investors include the artist Damien Hirst, spin-doctor Matthew Freud and businessmen Nigel Wray and Nick Leslau. It has not covered itself in glory since. But the arrival of Mr Finch in what is, in effect, a reverse takeover should improve its performance.

With the merger seemingly a done deal - shareholders with more than 50 per cent of Montana's capital have signalled their acceptance of the Hartford terms - the group is set to emerge as a powerful player in the fragmented restaurant market. On Ofex, Montana's shares are standing at 290p, reflecting some doubt about the strength of Hartford shares on AIM and, perhaps, illustrating some of Ofex's trading limitations. But with SG Securities underwriting a pounds 3.5m placing of its new consolidated shares at 62.5p, the 340p price is a realistic valuation at this stage.

The question that outside Montana shareholders have to answer is whether they want to stay with the enlarged group, holding Hartford shares, or cash in by selling in the market.

There is no rush to decide. Although a counter-offer would seem out of the question you cannot be completely certain until the formalities are completed. My inclination is to reserve judgement until the long merger process is almost complete. But whether I stay with the group, which expects to obtain a full listing next year, or not, the portfolio needs another fledgling. These shares are not for the proverbial widows and orphans but they do add a little spice to the proceedings.

It will be difficult, perhaps impossible, to alight upon another quickfire hit like Montana. But Ofex, and to a lesser extent AIM, have an assortment of bright young hopefuls which will either attract a bidder or develop into one of the more powerful players of the next millennium. It would, of course, be foolish to buy merely to get a little 'un on board

Allied Domecq is another portfolio constituent demanding a decision following the sale of its pubs estate to Punch Taverns. Much of the consideration is in cash paid directly to Allied shareholders although some Bass shares are on offer. I will, nearer the completion date, decide whether to stay with the slimmed-down Allied, accept any Bass shares and what do with the cash.