Leading analyst Simon French, of Cenkos, has predicted pub and restaurant groups will see up to three years of above average earnings growth driven by like-for-like sales rising above inflation, new site openings, a benign cost environment and selective M&A.
French said: “We forecast three-year CAGR in EPS of 8.4% on some fairly undemanding assumptions. M&A is gathering pace and we expect this to continue as management teams grow increasingly confident. The biggest risk is rising interest rates which may curb disposable income growth but we believe eating out will continue to thrive given how it has become embedded as part of the UK social calendar.
“CGA estimates c2,000 new restaurants have opened in the past 12 months. This reflects low barriers to entry, easy access for capital (driven by crowd funding) and a strengthening economic recovery. However, we are starting to notice restraint amongst the public companies with Greene King, Marston’s, Mitchells & Butlers and Wetherspoons all dialling back on new site expansion. This most likely reflects their historic pub positioning with strongest new site growth being seen in the casual dining sector led by Restaurant Group and privately owned companies such as Casual Dining Group, Wagamama, Bills, Cote and Loungers.”
He said his top picks were Mitchells & Butlers, Greene King and the Restaurant Group and his three sells are JD Wetherspoon, Domino’s and Compass.
