Leading analyst Simon French has reiterated his Buy recommendations for Domino’s Pizza, Greggs and The Restaurant Group (TRG), which all report trading updates this week.
French, of Panmure Gordon, said: “All should be good as it appears most privately owned pub and restaurant companies achieved mid to high single digit LFL sales growth in December, whilst footfall remained robust on UK high streets (even if spend was more selective).
“Our FY forecasts for the companies imply 1.2% LFL sales growth at Dominos in Q4, 0.3% at Greggs in Q4 and -3.9% (against a very tough comp of c9%) in the last seven weeks at Restaurant Group. However we think there is upside risk to all three of these FY forecasts. As such we reiterate Buy recommendations on all three stocks.”
On Domino’s Pizza, which reports its Q3 interim management statement on Wednesday, French said trading has been “resilientdespite the warm weather across Western Europe”.
“In the UK, like-for-like sales increased by 4.0% with a strong end to the period; LFL sales were up 5.6% YTD. Internationally, Ireland reported LFL sales growth of +2.4%, Germany +9.4% and Switzerland +4.7%. Management remained confident of meeting market expectations.
“The market has been unsettled by the timing of CEO Lance Batchelor’s departure following on from CFO Lee Ginsberg (not officially stepping down until the AGM) and head of franchising Georgina Wald.
“Crucially we don’t think the prospects for the group have changed at all. Our FY forecast of 4.5% LFL sales growth in the UK implies 1.2% LFL sales growth in Q4. The stock trades on a 2014E P/E of 18.9x, and EV/EBITDA of 13.3x and yields 3.5%. We reiterate our Buy recommendation and 553p Target Price.”
On Greggs, which reports on Thursday, French said: “Our FY forecast implies 0.3% LFL sales growth in Q4, which should be achievable given robust footfall on UK high streets.
“The stock trades on a 2014E P/E of 14.6x, an adjusted EV/EBITDAR of 6.7x and yields 4.4%. We reiterate our Buy recommendation and 450p Target Price.”
TRG also reports on Thursday. French said: “The Restaurant Group announced its IMS for the 45 weeks to 10 November with trading in line with our expectations reporting 3.5% LFL sales growth with positive LFL sales in September and October.
“This performance implied LFL sales grew c1% during the last 11 weeks reflecting the impact of the Bond film release during the latter part of the same period last year. Total sales growth of 9.1% reflected 21 new sites opened YTD which are performing well.
“The group tightened its 2013 openings guidance to 33-35, towards the top end of the previous range and said it expects to open a higher number of new restaurants in 2014. Our FY forecast implies a 3.9% decline in LFL sales growth in the last seven weeks against a very tough comparative of c9%.
“However given the strong trading momentum we think there is a good chance the group outperforms against our forecast. The stock trades on a 2014E P/E of 20.2x, an adjusted EV/EBITDAR of 9.7x and yields 2.6%. We reiterate our Buy recommendation and 600p Target Price.”
