The Restaurant Group’s (TRG) H1 results demonstrate continued trading momentum, enhanced disclosure, and significant progress against its medium-term targets, according to analyst Shore Capital.
TRG provided a trading update yesterday (6 September) for the six months to 2 July 2023, with Wagamama, Pubs, and Concessions seeing robust trading on a like-for-like (lfl) basis.
Shore Capital said in an analyst note that TRG reporting divisional breakdown for the first time demonstrated a continued shift in the profit mix towards higher value channels.
Wagamama profitability was up strongly at EBITDA of £29m, while Brunning & Price remained broadly flat (£9m) and Concessions continued to recover strongly (up by £4m to £7m).
“What was clear was the continuing pressure in Leisure where profitability (ex-VAT) was down £5m and was just breakeven. We believe this greater granularity will help demonstrate the increasing mix towards higher equity channels and should eventually be reflected in the valuation.”
Shore Capital anticipates a “notable” improvement in H2 owing to ongoing recovery in the air channel, along with leisure estate rationalisation.
Investec similarly noted that Wagamama and Pubs beat expectations and that TRG stock is significantly undervalued in its view.
“We think investors will like the divisional clarity provided…we see the stock as hugely undervalued.”
In an analyst note, Investec further said management has “never ruled out” potential asset disposals – provided they happen at the right price and help accelerate margin expansion and deleveraging.
“We believe that recent outperformance, delivered in a difficult environment, reinforces RTN’s negotiating position.
“RTN continues to “actively explore strategic options” but from a stronger position after having over-delivered in past months.”
Singer Capital Markets also noted “pleasingly strong” lfl momentum. Despite Wagamama and Leisure benefiting from cooler weather vs FY22 and a “good film slate,” trading has continued to be strong going into Q3, with lfls ahead of the analyst’s working assumptions.
“Our revised price target is now 68p (vs 60p) based on 7x FY24 EV/EBITDA to better capture the likelihood of investors pricing in earnings recovery from the 2023 low base as th year progresses.”
