Mark Irvine-Fortescue, of Panmure Gordon, gives his view on this morning’s trading update from The Restaurant Group.
The statement, which revealed like-for-like sales down 1.8%, was generally above analysts’ expectations and has sparked a 10% rise in the group’s share price.
Irvine-Fortescue said that while the like-for-like sales performance was better than expected, it is still likely to fade as F&B price cuts kick in.
He said: “We expect some relief today, but expect the shares to remain volatile whilst turnaround evidence builds; hence our lack of conviction and HOLD rating.”
He added: “Lfl sales down 1.8% is better than our expectations, although perhaps we underestimated the mix effect from the worst performing sites being disposed/discontinued.
“We expect the LFL run-rate to trend towards our -5% FY estimate, reflecting the following dynamics: 1) the new Frankie & Benny’s menus have only been in place for c.4 weeks, so the price cuts will drag in Q2 and Q3, 2) Leisure businesses have benefited from cinema admissions having a good start to the year, which is expected to moderate, 3) the Concessions business has been strong, benefitting from strong growth in passenger numbers (comps get tougher) and 4) the Pubs business performance has been helped by favourable weather/good Easter.
“Combined we estimate Concessions/Pubs are c.30% of group profit. Management continuesto expect to deliver a PBT outcome for the FY in-line with current market expectations, which is reassuring.”