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Restaurant Group still unappetising

The outlook is too uncertain for a recommendation change
September 8, 2022
  • Hedged utilities
  • Post-period acquisition

Restaurant Group’s (RTN) sales surged against a pandemic-hit prior year. But the restaurant owner, whose main trading brands are Wagamama, Frankie & Benny’s, and Brunning & Price, was dragged down to another statutory loss by £45mn of gross impairment charges.

Despite progress, sales are still £100mn down on pre-pandemic levels. And trading has weakened in key areas as this year has progressed. Against 2019 postings, like-for-like Wagamama (the brand's new UK sites bring in the highest cash profits across the portfolio) sales were up 15 per cent for the 19 weeks to 15 May. But for the 14 weeks to 21 August, growth was only 5 per cent. Pub revenue growth also fell back, while leisure and concessions sales were negative over the summer against pre-pandemic. The company cited factors such as airline disruption, delivery sale trends, and the impact of heatwaves. Whatever the case, this is a mixed top-line performance.

Chief executive Andy Hornby highlighted action on costs. He said that this included “fully hedging our utilities until December 2024 and reducing our interest rate exposure through interest rate caps”. But the impairment charges which pulled the company into the red were put through after an assessment of assets due to the difficult macro environment hitting trading forecasts.

Peel Hunt analysts cut their target price from 90p to 80p but noted a forward equity free cash flow yield of 19 per cent and said that “we would follow the directors’ lead in buying shares at the current level”. We would not. While the £7mn post-period acquisition of Mexican fast food restaurant Barburrito looks like a good move as consumers trade down, difficult times lie ahead for the sector –  as highlighted by the impairment. Sell.

Last IC View: Sell, 74p, 16 Mar 2022

RESTAURANT GROUP (RTN)  
ORD PRICE:44pMARKET VALUE:£335mn
TOUCH:43.8-44p12-MONTH HIGH:126pLOW: 38p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:55p*NET DEBT:133%
Half-year to 03 JulTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2021217-57.6-7.80nil
2022423-28.5-3.40nil
% change+95---
Ex-div:-   
Payment:-   
*Includes intangible assets of £592mn, or 77p a share