Private Investor: Shares with Bolognese sauce, anyone?

As you can probably guess from the image of the well-nourished individual at the top of this column, I like Italian food. I also like shares in companies with an interesting story. So I've bought some in a restaurant group I've long been impressed by: Carluccio's.

In fact, this is not my first venture into shares with a little Bolognese sauce and dough balls on the side. A few years ago, I had a small holding in Ask Central, the pizza/pasta group that, seemingly like all the best stuff (as I wrote last week), has gone private. As with Carluccio's, I became interested in the shares after dining at the restaurants.

Of course, just doing that isn't in itself sufficient basis for an investment, but it can be at least one indicator of how a company is doing. Whenever I went into an Ask Central, it was packed out, and whenever I go into one of Carluccio's outlets, it is similarly full of seemingly happy eaters.

Then there's price. This is the same factor as I considered with Ask Central, and which also accounted for at least some o f the popularity of Pizza Express. Generally, give or take the odd terror outrage, the tendency of the economy is to generate higher incomes, of which an increasing proportion is spent on leisure. Or, as you'll well know, the better off we are, the more we spend on eating out.

The Americans, I think, recently passed the point where they spend more as a nation on eating out than eating in. I'm sure we won't be far behind. Now, that means that there will be a continual drift upmarket, from the really cheap outlets and fast-food restaurants, to the middle market. People will migrate from Pizza Hut to Carluccio's as they become more prosperous, in other words.

And in this sector of the market, as Pizza Express and Ask Central demonstrated in the past, the guarantee of quality you get with a trusted, established brand is hard to fault. After all, when you're having that quick business lunch sans booze, you at least need to know that you won't have to complain about what you're eating or disappoint your guest.

So it is with Carluccio's (although I do have one quibble with the restaurant chain: the acoustics in some of its branches can make conversation a bit tricky).

There again, in bad times you might find a drift from the top-end establishments to the mid-market, too, so an eaterie such as Carluccio's is a good hedge on either scenario, perhaps.

In any case, the bare facts bear out my suspicions. Carluccio's has doubled its number of outlets and trebled its turnover since 2002. Last week's trading update suggested sales are on course to be up by a fifth in 2006 to £45.6m, with profits up slightly more than that to more than £4.2m.

I've arrived rather late for my meal of Carluccio's shares. It was back in 1987 that Antonio Carluccio got into the trade big time, when his brother-in-law, Sir Terence Conran, invited him to take over his Neal Street restaurant.

Carluccio's reputation swelled with the business. In 1991, Carluccio shrewdly branched out by opening a small delicatessen next door to the restaurant, thereby catching even more profit as customers took the ingredients home with them (truffle butter, anyone?).

You can even shop at Carluccio's online nowadays. In 1999, with funding from outside investors, the first Carluccio's Caffè was launched, and the company hasn't looked back. Now, the Carluccio's brand is as strong as any in the catering and leisure sectors. The Carluccios made £10m when the firm floated last year, and now own 3 per cent of the shares. Sales at the group's restaurants are around 25 per cent ahead of targets, and since floating at 94.5p in December 2005, the shares have risen 63 per cent.

The chain serves about 60,000 people (including me) a week; and sales have increased by 90 per cent in three years. But expansion is judicious, at about five new restaurants a year (often with delis next door), and restricted to the most promising locations.

The only snag is the price (of the shares, that is, not the penne with sausage sauce). They are not cheap, trading on more than 30 times' forecast 2006 earnings, falling to 27.3 times 2007 estimates. However, when something is this hot, I'm prepared to suspend my usual caution. After all, like food, you have to pay a little for quality, so I've filled up my plate at 159p. I may even go back for seconds.

s.ogrady@independent.co.uk