Oriental looks mouthwatering: The Investment Column

Cynics would argue that massive first-day premiums on small new issues are among the most reliable signs of the top of a bull market. For the increasing numbers of bears fretting about the state of the market, the big jumps on first dealings in Ultra Electronics and Oriental Restaurants would have served as bright red, flashing, warning lights.

Of the two, the jump at Oriental looks the more intriguing as this is a company in its infancy, running only four restaurants although with ambitious plans to roll its Thai and Chinese outlets across London and then to the provinces. The shares, placed at 154p, cleared 200p before settling to a still-impressive 188p.

Established in 1988 under the Business Expansion Scheme, the company has been a fantastic investment for the handful of City investors who used the generous tax relief of the BES to put in as little as 4p a share eight years ago. Their hunch that there would be demand for relatively upmarket oriental restaurants in the City and West End proved correct and the Sri Siam, Sri City and Imperial City venues are among the most popular lunching spots in the square mile.

Recent estimates have put growth in the eating out market in the UK at 7 per cent a year for the foreseeable future and the ethnic food part of that market is growing even faster. Thai cuisine is the fastest sub- sector of all, so Oriental ought to be looking forward to some pretty mouthwatering growth.

The recent history is impressive. Operating profits in 1994 of pounds 456,000 grew to pounds 729,000 in the year to March 1995 and in the latest period had grown again to pounds 966,000. It is little wonder that the company has decided to pay Hock Ann Chua, its managing director, pounds 320,000 to cap his performance- related bonus.

On the basis of an expected 25 per cent growth in pre-tax profits for the year to March, the shares trade on a prospective p/e ratio of about 17. The shares will hold onto their early gain.