The board's track record suggests a potential multibagger.
Now I -- like you, perhaps -- do enjoy backing the occasional higher-risk share. A small side bet, maybe, that one day could multiply several times over... or sink without trace.
After scouring through the battered AIM market for potential multibaggers, I've bought a few shares in Tasty (LSE: TAST). I've high hopes this small restaurant chain can really outperform during 2012... and beyond.
Naturally, this company won't be for everyone. Tasty was established in 2003 and floated in 2006, and yet only started to record a profit during 2010. What's more, progress has been a bit slow, with the group's chain growing from three sites to just fifteen in the last five years.
Meanwhile, the current market cap of £24m compares with profits of about £1m, and there is no dividend to collect.
Family feast
What attracts me to Tasty is the group's management. You see, the boardroom is represented by the Kaye family, who must be among the most successful restaurant bosses in the country.
The Kayes' story began in the Fifties, when East End brothers Reginald and Philip became franchisees of the then novel Wimpy burger chain. The Kayes then set up their own Golden Egg restaurants in the Sixties, serving up bacon, egg and chips within some rather garish interiors. The Seventies witnessed a switch to Deep Pan Pizza while it was back to burgers with Garfunkel's in the Eighties.
Philip Kaye handed down his operating know-how to his sons, Adam and Sam, in the Nineties and here is where the first Kaye stock-market success emerged.
ASK and ye shall receive
The sons brought pizza group ASK Central to AIM in 1995 and its shares traded initially around 14p. By 2002, however, Adam and Sam had expanded ASK's estate from 10 to 172 restaurants and watched annual sales jump from £3m to £96m and profits surge from £0.2m to £17m. ASK was sold for 220p a share during 2004 -- easily a 10-bagger for early investors!
The second Kaye success was (and still is) Prezzo (LSE: PRZ), a chain that specialises in Italian food. Established by Philip's nephew, Jonathan, in 2000, this business joined AIM in 2002 and has since expanded from 8 to 172 outlets. Annual sales meanwhile have surged from £4m to £115m and transformed a small loss into profits of £15m. Prezzo's shares floated at 12.5p and currently trade at 57p, having been as high as 94p.
Tasty hat-trick?
I'm pretty convinced Tasty can now complete a hat-trick of Kaye stock-market winners. I see three crucial ingredients:
1. Kaye involvement: Sam Kaye is a Tasty executive, Adam Kaye is a non-exec and Philip Kaye is a major shareholder. Between them, the trio control 44% of Tasty and thus have more than £10m riding on the share price. I note the Kayes have always backed their chains with major stakes -- they enjoyed a 67% holding during the early days of ASK and still own 64% of Prezzo.
I also like the fact Tasty's chief executive, Jonny Plant, co-founded the firm with Adam and Sam and owns an 8% stake. I'm encouraged, too, by the board granting options that can only be exercised if the price tops 100p (that is, double from today's 50p).
2. Expansion potential: After a false start operating dim sum restaurants, Tasty has since moved to the more familiar territory of pizza and currently operates nine sites under the Wildwood brand. It seems to me the chain is still at the ground floor of a future rollout, while plans to open a further six to eight units in the coming months suggests expansion may finally be accelerating. If ASK and Prezzo are anything to go by, I believe Tasty's outlet count could one day surpass 100.
3. Favourable upside: Tasty's £24m market cap is dwarfed by the £200m-plus ASK was sold for and the £129m Prezzo currently boasts (which is based on a modest P/E of 10). If Tasty can expand its Wildwood chain to anything like the size of ASK or Prezzo, then I believe the shares could easily multiply from here.
What now?
I may be wrong, of course, and next year Tasty's fledgling sites could become casualties of the miserable economy. But I think the combination of first-class directors and sizeable rollout potential -- plus a decent wedge of cash on the balance sheet -- put the odds in my favour right now.
I'm looking to hold Tasty shares throughout 2012 and the years beyond to capture as much upside as I can... while recognising this AIM gamble could instead serve up a thumping loss!
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> Maynard owns shares in Tasty.
