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Restaurant Group suspends dividend

The Restaurant Group aims to close up to 90 sites by the end of 2021
February 26, 2020

The Restaurant Group (RTN) exceeded £1bn in revenue in 2019, but it swung into the red courtesy of a £106m net impairment charge against property, plant and software assets. The share price went into reverse after the group suspended its dividend in order to accelerate deleveraging, invest in high-growth segments and provide the flexibility required to restructure its estate.

IC TIP: Sell at 110p

The group, which owns the Wagamama and Frankie & Benny’s chains, aims to close up to 90 sites by the end of 2021. Chief executive Andy Hornby said in a statement that he was “acutely aware of the challenges” facing the leisure business and the wider casual dining sector. Management noted that chronic overcapacity in the sector and significant cost pressures had weighed on its leisure business. Just last year it closed 16 restaurants.

But it stands firm on its £559m bet on Wagamama to drive its recovery. Its optimism for the chain is not unjustified: the group's overall increase in like-for-like sales was driven primarily by the acquired Wagamama estate of 150 sites, up by 8.5 per cent and far ahead of the wider market.

Broker Peel Hunt forecasts pre-tax profits of £81.5m and adjusted EPS of 13.1p for the year end in 2020, up from £74.5m and 11.9p in FY2019. 

RESTAURANT GROUP (RTN)   
ORD PRICE:96.6pMARKET VALUE:£475m
TOUCH:96.35-96.8p12-MONTH HIGH:167pLOW: 96.6p
DIVIDEND YIELD:2.2%PE RATIO:na
NET ASSET VALUE:82p*NET DEBT:71%
Year to 29 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20150.6986.847.423.8
20160.71-49.3-32.923.8
20170.6828.26.723.8
20180.6913.92.48.3
20191.07-37.3-8.22.1
% change+56-368-442-75
Ex-div:na   
Payment:na   
*Includes intangible assets of £617m, or 125p a share