Smaller Companies: Pizza restaurant chain expresses its strategy

PIZZAEXPRESS, the restaurant chain, has enjoyed a remarkably happy honeymoon since its flotation via the reverse takeover of a computer services company six months ago.

The shares have doubled to 85p last Friday and are poised for a further spurt as the group approaches its first full-year result as a public company next month.

PizzaExpress, founded by Peter Boizot almost 30 years ago, will shortly embark on an important expansion programme with the buyout of several key outlets currently run by its franchisees.

It is thought to be close to agreeing the purchase of at least three restaurants in Surrey and Sussex for a total approaching pounds 1m. The deals are expected to value the restaurants at about five times operating profits and should be financed from PizzaExpress's pounds 2m cash pile.

The acquisitions are in line with the group's strategy to reshape and expand its portfolio of company-owned and franchisee- operated sites. At present it owns 30 restaurants and another 42 are under franchise. However, it is aiming to achieve a balance between the two by acquiring some outlets from its franchisees and opening more in-house sites.

The overall objective is to concentrate the owned restaurants in big cities and use franchising in other areas. The group has been looking for attractive locations, particularly in the North and Scotland. A handful are thought to have been earmarked for further investigation and could be open by Christmas.

That should enable the group to significantly boost its share of the pounds 600m market for pizza and pasta restaurants. Thanks to traditional pizza recipes and stylish interiors its restaurants boast a more upmarket customer profile than most rivals.

PizzaExpress also owns the sole UK import licence for Peroni, the Italian beer, which made pounds 450,000 profits last year and has considerable growth potential.

Penny Freer, an analyst with Credit Lyonnais Laing, is forecasting taxable profits of pounds 1.3m for the year ended 30 June, reflecting just four months' contribution from the restaurant business. However, taxable profits are expected to surge ahead to pounds 4m this year, valuing the shares at about 15.5 times 1994 earnings.