Of course, any new business is itself subject to the same laws of supply and demand, and thus has to come up with a really compelling proposition if it is to convince consumers to spend with it, rather than with competitors. If a new business can succeed during a tough economy such as the one the UK has experienced for the last five years, the business should really start to prosper once things pick up.
Whether the UK is experiencing a sustainable recovery or not is debatable, but the signs are there that the recovery is genuine. I am wary, however, of what will happen when interest rates eventually start to rise. With this in mind I prefer to invest in businesses with low debt and healthy cash-flow.
The casual dining sector appeals to me because, once a successful concept has been created, the opportunity is there to replicate the formula on every major high street. Also, tastes in food are constantly changing and people like to try different things, so there is always room for new entrants.
Two people who have great experience in this area are brothers Adam and Sam Kaye. They founded the ASK pizza chain with a single restaurant in 1993 and expanded the concept into an estate of 165 restaurants, including the more upmarket Zizzi brand, before selling the business in 2004 to Pizza Express's owners.
With a pedigree like that, as well as a father, Peter Kaye, who founded Garfunkel’s, I was immediately drawn to Tasty plc (TAST), the Kaye brother's latest restaurant venture. TAST operates two casual dining brands, dim t and Wildwood.
dim t is an "Asian-fusion" restaurant serving a mixture of Thai, Malaysian and Chinese dishes. In the firm's own words “our modern restaurants are relaxed and affordable, catering for all your favourite Asian tastes with an extensive menu of the most popular oriental dishes and a wide range of refreshing Chinese teas."
It does appear to be a bit of a mish-mash of Asian tastes, but my sister ate at the London Bridge outlet and pronounced the food 'excellent' and the location 'stunning.' There are currently six dim t restaurants, five in London and one in Winchester.
Wildwood is a pizza, pasta, and grill restaurant concept. It appears to be the brand that most plays to the strengths of Adam and Sam Kaye and has been the focus of the group’s growth in recent years. There are currently 17 Wildwood restaurants, four in London and the rest mainly in the surrounding counties.
TAST has not been immune to the recession, however. In 2009, it wrote down the value of its restaurant assets by £1.85m and converted some dim t restaurants to Wildwood. A £2m share placing followed which resulted in Sam Kaye (joint CEO) owning 19.6 per cent of the company’s shares, Adam Kaye 15.9 per cent and Peter Kaye 5.2 per cent (joint CEO Jonny Plant owns 7.67 per cent). But in 2011, TAST reported a maiden profit £0.51m on revenue of £10.6m.
The forward PE ratio is 27.58 in 2013 and 18.96 for 2014, implying earnings per share are forecast to grow by 13.3 per cent in 2013 and 45.5 per cent in 2014.
This share may be more speculative than some of my other picks, the market cap is much smaller at £43.6m and the shares are held in a few, very seasoned hands. It is healthy that management's interests and those of shareholders are closely aligned and I feel that the fundamentals and the strong track record of management makes this a good new buy for my ValuableGrowth portfolio. I bought in at 86p on 22nd July 2013, just before I went on holiday. The share price is now at 91p.
PS. The 2013 forecast EPS from Cenkos Securities was 330p, up 113 times from 2.91p in 2012! That is a huge number of restaurants to be opened in a short period of time. I e-mailed the broker saying that I thought they had missed out the decimal point. I have heard nothing back, but miraculously the 2013 forecast has changed to 3.30p. A thank-you would have been appreciated.
Update on SciSys
I have bought into SciSys (SSY) at 69.9p on 24th July 2013. I have been watching the share price and it seemed to have formed a base at this level. I had a bit of luck in that SciSys provided an update of a new contract win the next day and the shares are now trading at 74p. I intend to provide a quarterly review of the ValuableGrowth portfolio at the end of September.
