Leading analyst Doug Jack at Numis has said that having generated 7% PBT growth in 2014, a year in which cinema market attendance fell 5%, he believes The Restaurant Group (TRG) can accelerate its growth in 2015E.
He said: “In our view, the company’s improving growth prospects have been largely overlooked in recent months; we would buy the shares ahead of what should be a strong H2 for the company.
“Supported by rising consumer disposable income and a strong cinema film slate in both 2015E and 2016E, we believe the company could be capable of 20% self-financed earnings growth in 2015E.”
The group’s sales rose 2.8% in 2014, even though approximately half of its restaurants are located next to cinemas, for which market attendance fell 4.9% in 2014.
Jack said: “Thus, Concessions, Garfunkels and the pub restaurants must have continued to perform
strongly last year. This year, we believe that cinema market attendance could rise by c.8%, weighted to H2, aided by easy comps and a strong film slate. Despite this, our forecasts cautiously assume LFL sales rise by 3.0% in 2015E.
“Food LFL sales growth is largely volume driven. Although we estimate that drinks prices rose 5.3% last year, based on CGA data, drink accounts for only a quarter of sales; and food prices rose by less than 1% in October. Thus, price inflation should be slightly under 2%. It is possible that strong cinema prospects and an improving consumer backdrop could support more progressive food pricing in 2015E.
“Improving margin prospects. Although labour cost inflation has picked up to 3-4% (also benefiting customers), food cost inflation is under 1% and rent inflation is under 2%. As a result, we believe there is upside to our 2015E forecast of 10bps margin growth, which could also benefit from higher LFL sales.
“Expansion is accelerating. Whereas 40 outlets opened during 2014, guidance is for 42-50 in 2015E. Expansion is becoming less reliant on Frankie & Benny’s (F&B), with new-design Chiquito and Coast to Coast trading as well as F&B. The company expects to double the size of its 472-strong restaurant estate over the next eight years.”
