Smaller Companies: Pelican's restaurant themes sound like a winner

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RESULTS published last week show that Pelican, the USM-quoted theme restaurateur, is an impressive business. Taxable profits rose by 100 per cent to pounds 1.25m for the year to 31 March compared with pounds 860,000. Turnover was pounds 8.1m up from pounds 6.3m.

Pelican runs a chain of French-style brasseries called Cafe Rouge. It has doubled in size since the year end with the acquisition of four restaurants - and two new theme ideas - from Robert Earl, the Planet Hollywood impresario.

It bought three Italian-style Mamma Amalfi eateries and the Rock Island Diner, an American hamburger bar in Piccadilly, London. Mr Earl also took an 11 per cent stake in Pelican and a non-executive directorship.

With the new acquisition, current-year results will be significantly better. There are now 35,000 punters a week filing through Pelican's restaurants. Each spends about pounds 10 in what are in effect sophisticated fast food joints.

Pelican outlets work best where there are lots of people. It has targeted shopping and cinema complexes to open outlets.

Those 35,000 people a week spending pounds 10 each mean an annual turnover of pounds 18m. Pelican's operating profit margin in last year's results is 15 per cent, making theoretical profits this year of pounds 2.7m.

Mr Earl's restaurants, acquired in May, will not contribute to a full year's profits. Pelican's own stockbroker, Beeson Gregory, is forecasting profits of pounds 2.2m.

Robert Myers, chairman of Pelican, knows a lot about themed restaurants. With an accountancy background he brought a company called Theme Holdings, which ran a string of restaurants, to the Stock Exchange in 1987. Theme was worth pounds 6m in 1987 but 18 months later he sold it to Leisure Investments for pounds 17m.

Pelican is London-based but Mr Myers reckons expansion nationwide will mean opening 20 more Cafe Rouge restaurants. Plans are advanced for more Mamma Amalfi and Rock Island Diner outlets too, all to be financed out of existing profits.

It sounds like a sure-fire winner but one or two things suggest caution. Mr Myers talks about growing by acquisition. If targets are properly examined and management can cope, all well and good. But recent stock market history is littered with examples of companies brought low by over-ambitious expansion.

And while Pelican's overall growth has been impressive, growth in earnings per share has been less rapid because expansion has been funded by share issues.

Despite the larger equity base, however, shares have climbed. From 25p this time last year they closed at 64p on Friday, up 3p on the day.

Earnings were 4p for 1993, up from 3p, and are benefiting from a low tax charge. But Pelican is quickly using up tax losses and will probably have a full 33 per cent tax charge next year. Beeson Gregory thinks earnings this year will be 4.5p, putting the shares on a forward multiple of 14.2.

Pelican is not without risk, but for a high-growth company, the rating makes the shares attractive.