JP Morgan and Goodbody on The Restaurant Group

First half performance at The Restaurant Group (TRG) was better than expected, said JP Morgan, despite the trading environment continuing to be tough.

“Group like-for-like growth of 4.0% comfortably beat our expectations of 2.9% in the first half, driven by market outperformance from Wagamama, as well as Pubs & Concessions. Adjusted PBT was £28.1m, 4% higher than our estimate,” it said in its note on the results.

“Although the shares have been strong into results, we believe TRG remains under-valued given the strength of the Wagamama brand, the structural opportunities in Concessions, and the continuing optimisation of the Leisure portfolio,” commented analysts.

“Most importantly, in our view, over 70% of group EBITDA now comes from structurally growing areas. We reduce FY19e adjusted PBT by 3% due to a more cautious view on Leisure. We remain Overweight, with an unchanged target price of 200p.”

JP Morgan said that “Wagamama shines”, outperforming expectations in the first half of the year, at 10.6% lfl sales growth, ahead of its long-term average of c.7%, pushed up by delivery in particular (up 30bps to 12% of sales).

The analyst has changed its estimates, with FY19e group like-for-like growth decreasing by 20bps to 2.4%, on the back of lower expected growth within Leisure. “Adjusted PBT decreases by 3% to £74.9m, due to increased cost inflation. FY20e group like-for-like growth decreases 30 bps to 2.3%, and adjusted PBT decreases by 3% to £93.7m,” it said.

Group revenue came in just under Goodbody’s forecasts of £517m – at £516m for the 26 weeks to 30 June 2019 – driven by the acquisition of Wagamama.

It noted that current like-for-like sales growth had slowed to +0.2% in the first six weeks of H2, “which is disappointing versus a good H1 outcome”.

The group now expects to exit 50% of its leisure estate, reaching their next exit date, which has put depreciation at c.£5m lower than expected, it said.

“At first glance, we will likely reduce our LFL forecast for Leisure owing to the challenging start to H2 and would expect to reduce FY PBT by low single digits,” it said.