Fool's Eye View

[ March 23, 2000 ]

ASK - profits increase by 75%

By Nigel Roberts (TMFNigel)

Chippenham, Wiltshire -- Doesn't it just give you a warm glow in your heart when a company that you have been following produces a set of results that beat all of your expectations? Well that happened to me this morning when I opened up the results of ASK Central (LSE: AKC), a company that was selected as one of our Growth Shares to watch -- a Germinator -- back in September 1999.

ASK Central now operates from 87 restaurants, up from 68 at the time of writing the Germinator article. At the end of the year they had 79, a little ahead of the target of 75 they had set for themselves in the 1998 annual report and accounts. I first came across ASK when they started coming through my selection criteria back in 1998 when their share price was 483p, and having visited a number of their restaurants I became an ASK convert.

Followers of the Fool will know that the writers of the Qualiport are unashamed PizzaExpress (LSE: PIZ) fans, but have to say I hate PizzaExpress. I have been to their restaurants 10 or 12 times now, and I have never (not once) come away feeling satisfied: the service has never been particularly good, and more importantly for me (as I am a big eater) the quantity of food you get is pitifully small, and the selection is uninspiring. Indeed the pizzas are so tiny and expensive that I have often felt that I have been ripped off. No wonder their margins are so good when they charge you so much for so little!

Now don't get me wrong, I think PizzaExpress is a fine company, with great financials, but I for one would never go and visit one out of choice, and so I would never want to own shares in them either. With ASK Central I have never, ever felt ripped off: the food has always been substantial, the menu extensive, the staff courteous, and the surroundings pleasant and clean. Not only that: the financial performance has been downright wonderful!

So back to today's results. We had been expecting to see sales of about £35 million, profits of about £6.13 million and earnings per share (EPS) of about 20.6p. In the end they posted a turnover of £41.2 million, profits of £7.1 million and EPS of 26p, all up between 74% and 76% compared to the previous year -- wow!

During the year they opened 30 restaurants, and disposed of one. They currently have 87 restaurants open with a further five under construction. This expansion has been funded through their own cash flow, although they have now used up most of the cash that they had sitting in the bank, and will probably need to resort to borrowing money in the near future to maintain the growth.

The company is quoted on AIM (the Alternative Investment Market). AIM is operated by the London Stock Exchange, but has less demanding rules than the Official List. Often AIM shares are high risk, and can trade in limited markets: this means that the shares can be difficult to buy or sell. ASK is one of the biggest companies listed on AIM, indeed it is something like the 650th-biggest company on the London Stock Market, bigger than a great many fully listed companies. In general the market in the shares is liquid, which means that it is relatively easy to buy and sell the shares. To "increase liquidity" the company announced that it intends to do a 4 for 1 share split on the 8th May 2000: but remember, share splits do not have any real impact on the value of the underlying business.

One more thing: I remember back in September 1999 PizzaExpress said the that ASK are "following and copying" and will have "strains on human resources and consistency of the offering" as they expand. I wonder if this showed that PizzaExpress are becoming complacent, as big successful companies often do? Rather than knocking your competitors, it is better to look at them and learn from them. Will PizzaExpress bring back a bigger pizza? I doubt it!

If you're a fan of the restaurant and pub sector, you really should have a look at the Motley Fool's Industry Focus 2000, as this is one of the 14 sectors covered in detail.

Any feedback on this feature can be directed to the Fool's Eye View discussion board. I will be ready and waiting to defend myself against the hordes of PizzaExpress fans defending their favourite company!

Related links:
• ASK Central -- discussion board
• ASK Central -- A Germinator
• Maynard Paton on PizzaExpress' interim results
• Fool Shop -- Industry Focus