Leading analyst Douglas Jack at Numis believes the prospects for The Restaurant Group remain strong and that it is capable of beating FY forecasts, even though a large number of openings in late Q4 should incur pre-opening costs without having time to generate offsetting revenues.
Jack said: Although we expect to hold forecasts, we believe there is increasing visibility on upgrades: we are forecasting less PBT growth in H2 (9.6%) than in H1 (12.3%) even though LFL sales accelerated to 6% (from H1’s 2.5%) in July-August and cost pressures have eased.
“The company can look forward to easy weather/sport-related comps in 2015E and a very strong cinema release schedule in both 2015E and 2016E.”
Jack said he expects LFL sales to have remained ahead, having risen 3.5% during the first eight months (vs his 3% FY forecast) during which cinema attendance fell 7.4% and airport passenger volumes rose 4.4%.
Jack said: “Subsequently, cinema attendance fell 13.8% in September, followed by a 30% increase in weekend box office during October. LFL sales comps have eased from 5% in H1 to 1.5% in Q3 and 3.5% in Q4.
“EBIT margins rose 23bps in H1 (vs our +15bps FY forecast) amid slowing food cost inflation (1-2% in 2014E), slightly higher labour cost inflation (at 2.5-3.0%) this year, and stable rent inflation (at 1.6-2.0%). Given the improving LFL sales backdrop, we believe our H2 margin forecast (+10bps) is cautious.
“17 new outlets opened in H1 vs. eight in H1 2013. We forecast 39 new openings this year (guidance: 38-43) and 43 openings next year, supported by a three-year site pipeline.”
