Relief for long suffering shareholders of Restaurant Group (RTN) was evident on Wednesday after the company revealed continued outperformance of its Wagamama brand accompanied by a ‘confident’ statement on full year expectations.

The shares jumped almost 7% to 41.7p taking the gains since December 2022 to 57%.

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WAGAMAMA STRONG, CONCESSIONS RECOVER

Despite hot weather in May and June, Wagamama like for like sales were up 8% in the first 28 weeks of 2023 compared with same period last year adjusted for VAT.

Dine-in sales were particularly strong up 13% year-on-year while recent new openings were said to be ‘extremely strong’ and performing ahead of expectations. Over the last two weeks to 16 July, Wagamama like-for-like sales growth accelerated to 22%.

The group's concessions division benefitted from the ‘rapid’ recovery in passenger volumes with like for like sales up 30% compared with 2022.

The Brunning and Price pubs estate continues to deliver market beating performance with like for like sales up 11% for year. The business was recognised as the best pubs group by the CGA PubTrack survey.

While today’s better than expected inflation data will be helpful in potentially relieving cost pressures at Frankie & Benny’s and Chiquito, the leisure business has been most impacted by the cost-of-living crisis with like for like sales falling 2%.

MID-TERM STRATEGY ON TRACK

Having commenced a strategic review in March the board said it continued to consider its ‘wider strategic options’ to accelerate deleveraging and margin accretion, although it offered up nothing immediate which may disappoint activist investors.

The company insisted it had made an ‘excellent’ start in executing its plan to significantly increase EBITDA (earnings before interest, tax, depreciation, and amortisation) margins by 2.5% to 3.5% over the next three years and reduce net debt to EBITDA to below 1.5 times by the 2025 financial year.

Leisure analyst Gregg Johnson at Shore Capital estimates EBITDA could increase towards £130 million if the targets are achieved compared with his forecast of £106 million, implying future upgrades.

Johnson reiterated his positive stance saying: ‘Our sum-of-the-parts model suggests fair value of c.70p/share (9x EBITDA), which rises to c.120p/share, based on the delivery of the margin target.

‘With trading robust, new openings performing well and continued progress against its medium-term targets.’

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