A leading analyst has forecast that The Restaurant Group’s pre-tax profit will be up 11% to £27.1m when it announces its full-year results at the end of this month, but warned that its like-for-like trading prospects are now becoming much harder.
Douglas Jack at Numis said: “Whereas January–April’s 4% LFL sales were against a comp. of just 0.5%, TRG now faces a comp. of 4% in the 12 months to April 2013, a slowdown in footfall trends, which are unlikely to have been helped by better weather/the Olympics in August and are unlikely to be helped by a relatively poor film release schedule in 2013E.
“We are forecasting PBT to be up 11% to £27.1m based on our assumption of 2.6% LFL sales growth in H1. We have upgraded our 2012E forecast slightly to reflect this and an expectation of strong cash flow and trading from new sites. However, the valuation is above the historic average (6.3x EV/EBITDA) and LFL trading prospects are now becoming much harder.
Jack said that the group’s LFL sales rose 4% in January–April, slightly lagging growth in cinema attendance. He said that since then, the shares have “bounced 20% despite underlying footfall trends weakening”.
He said: “In 2010 and 2011, change in footfall was only just beaten by TRG’s LFL sales, which were boosted by an 18% average drinks price increase over this period (source: CGA). Last year, TRG’s average drinks price rose 10.3% (vs. 3.9% for the restaurant sector). As drinks account for a quarter of sales and food price inflation was c.1%, amid increasing competition, overall price growth must have been c.3%, implying almost no LFL volume growth.
“Wholesale food and energy costs are increasing again. Given TRG’s lack of LFL volume growth since 2009 and difficulty raising food prices, it may fail to recoup cost increases if large drinks price rises are no longer sustainable (from premium levels).”
