In advance of The Restaurant Group’s interim results announcement next week, Goodbody’s Paul Ruddy says it is encouraged by both the openings and format conversions being undertaken by the group, and believes there is evidence of a turnaround in like-for-likes in H2.
The note says: “Restaurant Group reported LFL’s of -4.3% for the first 20 weeks of H1 but noted this had recovered to -1.8% in the first seven weeks of Q2 (implying Q1 was c. -5.5%).
“Coffer Peach data would suggest that restaurant/food LFL’s deteriorated in May and June owing to the hot weather so Q2 trading is likely to have softened in the final six weeks of the period.
“We forecast H1 LFL growth of -3.0% but combining the above we suspect that the LFL could be slightly behind our forecast. Given the vast majority of this impact is weather related we see this as a short-term impact.”
Ruddy’s adds that while the weather in the first half of the year would have provided headwinds for restaurants across the country, Goodbody was encouraged by both the openings and format conversions in The Restaurant Group, “which are running ahead of our expectations”.
“We have been impressed with the progress management has made year to date in the concessions and pubs businesses. At the May trading statement, management noted that it had opened nine new units in the first 20 weeks. It also noted that it intended to open 10 pubs during FY18 and that it intends to open “at least 12 new concession sites”.
“Our forecasts include 18 openings for this year so RTN is running ahead of our expectations. We particularly like the growth in concession sites given footfall trends are very favourable in airports with several of the UK’s biggest airports registering record passenger numbers this summer.
“We now estimate there are c.54 airport concession sites in operation (six further in rail stations) and would take confidence from announcements such as the partnership with London Southend Airport (UK’s fastest growing airport) where RTN will reportedly invest £5m in developing the entire food & beverage offering. We would also note that the group are making good progress in converting Coast to Coast to Firejacks (five YTD) which are consistently receiving 4-5 star ratings on Tripadvisor.”
Profitability skewed to the second half
“We forecast adj. profit before tax of £22m (H1 2017: £25.5m) and EBITDA of £41m (H1 2017: £44.3m) for the first half. Key from this update will be guidance for the full year, we currently expect FY PBT of £54.6m (Factset consensus range £51.5m - £55.6m),” continued the note.
“Our bullish thesis on Restaurant Group is predicated on the fact that management is doing a good job in stabilising the Leisure business, while driving growth in the Concessions and Pubs divisions. We continue to believe there will be evidence of a turnaround in the group LFL in the second half as it laps easier comparatives (H117 -2.2%, H217 -3.7%) and retain our BUY recommendation and 360p PT.”
