Restaurant Group releases mixed results

Restaurant Group (RTN) fell to its third consecutive annual loss, despite promising trading against the wider market and a jump in revenue. The restaurant owner, whose main brands include Wagamama and Frankie & Benny’s, posted some promising figures after sites reopened for trading, but finance charges pushed it into the red.

While revenue is still significantly down on 2019, an almost 40 per cent increase this time around is encouraging, albeit from a low base. The company’s restaurants reopened for dining-in on 17 May 2021, after the relaxation of government restrictions on trading, and from that point like-for-like (LFL) sales in three out of four divisions outperformed both the market – as measured by Coffer Peach industry trackers – and 2019 postings.

In that period, Asian food brand Wagamama was the standout performer. It outperformed the market by 8 per cent and recorded LFL sales 15 per cent above its 2019 result. LFL sales in the multi-brand concessions division, which trades primarily in UK airports, plunged by 41 per cent against a backdrop of international travel restrictions. Impairments of around £20mn against concession sites due to trading levels didn’t help matters, although total impairments of £26mn at a company-wide level were down £117mn against the prior year.

A higher net finance charge was the culprit in turning a positive operating profit into a pre-tax loss. The company recorded a net £47mn charge against the prior year’s £38mn, with the increase due to a higher interest rate, a chunkier level of debt and a £1.9mn write-off on loan facility fees on old facilities.

New chairman Ken Hanna pointed to the balance sheet recapitalisation in the year – £167mn of equity was raised from a placing and open offer and a new £500mn debt package was agreed – and trading levels as reasons for why he thinks the company is set up “well despite the inflationary pressures that continue to impact the sector”.

But it would be unwise to underestimate the economic headwinds hitting the industry, from higher energy costs to labour shortages. Chris Beauchamp, chief market analyst at IG Group, said that “Restaurant Group might find that the respite between pandemic and harder economic times is all too brief”.

Analysts expect the shares to trade on a consensus 22 times forward earnings, below the five-year average of 25 times, and estimate earnings per share of 2.71p and then 5.05p for the 2022 and 2023 financial years, respectively. While there are some positives to take from these results, we aren’t at this point convinced on a recommendation upgrade. Sell.

Last IC view: Sell, 58p, 06 Oct 2020