Analysts corner: Peel Hunt on TRG

Recommending shareholders sell, analysts from Peel Hunt give their take on TRG’s results this morning

Trading is “broadly in line”, but this requires LFL sales to improve on the 2.4% that has been achieved with the benefit of favourable weather since the World Cup. Our full-year forecasts currently assume -0.7% LFL sales and £9m net cost inflation (£18m gross increase, less £9m of cost savings). We estimate that if LFL sales fall by more than 3% this year, dividend cover could fall below 1.0x.

The 3.7% decline in LFL sales contributed to EBITDA margins falling by 160bps to 11.7%. Our full-year forecasts assume EBITDA margins fall by 100bps (consensus 60bps). There is downside risk to both, with LFL sales down 2.8% after eight months vs previous FY guidance of 0% to -1%.

2019E forecasts require LFL sales to rise by 1.5%, aided by a 1.0% tailwind from 2018E’s snow and World Cup, and need the company to find another £9m of cost savings, with costs expected to rise at a similar pace.

This year, capex guidance is now increasing to £70m vs last year’s £40m to reflect additional pub acquisitions. Food and Fuel’s 11 leasehold pubs have been acquired for £14.9m, or 6.5x EBITDA. Despite this, leisure and retail park sites should still account for over 70% of sites at the end of 2018E.

Dividend cover is falling towards 1.0x, fixed charge cover is at just 1.6x, and the P/E is 14x. Acquisitions, conversions, social media, delivery, and cost reduction are making an impression, but they are minor compared to fixing 70% of the estate for which we are still unconvinced on the product and pricing proposition.