While The Restaurant Group’s (TRG) recent results saw it guide in line with expectations, and with a cautionary tone on cost inflation, analyst Berenberg said it was indicative of a management team “with an emerging record of under-promising and over-delivering”.
It upgraded earnings in November 2021 and January 2022 and still beat 2021 forecasts when it reported its results, despite the negative impact of Omicron in January, it said.
“We think TRG’s growth outlook is best-in class and, with its debt now well under control, see scope for significant cash returns,” it said in a note. The group reduced its net debt from £340.4m in 2020, to £171.6m, on a pre IFRS 16 basis.
Berenberg added that despite facing significant cost inflation this year, it thinks TRG can still outperform consensus earnings expectations.
The group achieved total sales of £636.6m for the 53 weeks ended 2 January 2022, compared to £459.8m in 2020.
Adjusted EBITDA was £81.2m (pre IFRS 16 basis), compared to £8.7m two years previously, with the group recording a loss before tax of £32.9m, on an IFRS 16 basis, compared to a loss of £132.9m in 2020.
Current trading has continued to be strong in the first two months of FY22, the group said. Each of the brands (Concessions excluded) delivered double-digit growth and significantly outperforming their respective markets, with Q1 like-for-like growth of 21% for Wagamama, 11% for Pubs and 11% for Leisure, with Berenberg describing the underlying momentum in trade as “outstanding”.
“We are in no doubt that cost inflation poses a challenge and will affect the earnings that the company could have made this year. However, we think that consensus estimates are already cautious and, given the strong sales momentum, we believe earnings risk this year is still skewed to the upside,” said Berenberg.
The analyst said it believed the group could return as much as £50m a year to shareholders by 2024.
Speaking to MCA following TRG’s full year results earlier this month, chief executive Andy Hornby said that VAT and price inflation were masking the true performance of the market. And while he was “clearly pleased” that the group was outperforming the market, he cautioned that celebrations over recovery could be premature.
