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Overhall at Restaurant Group

The company is planning to exit half its leisure sites on lease renewal under the recently instated chief executive's new strategy
Overhall at Restaurant Group

Restaurant Group’s (RTN) new chief executive, Andy Hornby, is set on overhauling the leisure division with a commitment to exiting half of its leisure sites on lease renewal. It has already closed 16 sites during the year, reducing the overall leisure estate to 352 locations. The remaining estate has a median duration of six years until lease expiry, or the date at which Restaurant Group can exercise a break clause - so a large-scale exit isn't achievable overnight. 

IC TIP: Hold at 136p

But rationalisation can't come too soon. An impairment charge on underperforming leisure sites made up the bulk of a £116m exceptional pre-tax charge that pushed the company into the red, with the remaining £10.7m linked to an onerous lease provision on leisure sites. 

Some existing leisure sites have already converted into Wagamama outlets after the pan-Asian chain was acquired last year. This process aims to deliver an incremental £7m benefit to cash profits and cost synergies of £15m by 2021. The newly acquired chain performed strongly over the period, with UK like-for-like sales growth significantly ahead of the wider market at 10.6 per cent, and adjusted cash profits up more than a fifth to £51.4m.

Analysts at Numis expect pre-tax profits of £76.7m for 2019, giving EPS of 12.3p, increasing to £91.1m and 14.7p in 2020.

RESTAURANT GROUP (RTN)  
ORD PRICE:136pMARKET VALUE:£667m
TOUCH:135-136p12-MONTH HIGH:223pLOW: 110p
DIVIDEND YIELD:2.7%PE RATIO:NA
NET ASSET VALUE:75.8p*NET DEBT:85%**
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201832612.23.36.8
2019516-87.7-16.12.1
% change+58---69
Ex-div:12 Sep   
Payment:10 Oct   
*Includes intangible assets of £617m, or 126p a share **Excludes lease liabilities of £10m