Numis has reduced its recommendation on The Restaurant Group (TRG), owner of the Frankie and Benny’s and Chiquito brands, from Hold to Reduce, which it said reflected reflecting downgrade risk. Douglas Jack, leading analyst at Numis, said: “Our consensus-in-line 2012E forecasts may be over-ambitious against tough comparatives (2011E had no major football tournament or snow, before which LFL sales fell in 2009 and 2010). Trading during the last six weeks will not have been helped by increasing competition and unemployment as well as a 14.6% decline in cinema box office takings (16.4% lower admissions), given the group’s high operational gearing and exposure to such locations. “Full year results, due on 29 February, are forecast to show a 10% rise in PBT (to £61.3m PBT; consensus £60.7m) against 2010 which had an extra week. However, attention should now switch to tougher prospects and recent trading in 2012E. The shares lost two-thirds of their value (albeit an over-reaction) when we downgraded forecasts by 8% at the start of the last downturn. We believe downgrade risk has returned and are cutting our stance to Reduce (from Hold). “ Jack said that the group’s expansion rate is likely to increase slightly in 2012E to 28 new sites, of which 16 should be Frankie & Benny's. He said: “The building of new retail and leisure parks has stopped, but TRG is expanding into new types of locations. After these openings and dividends (yielding over 3%), we forecast net debt to fall to c.£24m (from c.£41m) in 2012E, but with the annual rent roll rising to £60m, from £57m. “2012E forecasts. On average, the other quoted operators are trading 2% above full year LFL sales forecasts, allowing for tougher conditions ahead. To match this, TRG would need 3.5% LFL sales in early 2012E as we are forecasting 1.5% LFL sales (£66.5m PBT; consensus £66.2m) and flat margins.”