Shares in Wagamama owner Restaurant Group (RTN) jumped 3% on Wednesday to 45p after the firm delivered strong first-half organic sales growth and increased full-year profit expectations.

Revenue for the 26 weeks to 2 July increased 10% to £467.4 million and adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) was 15% ahead at £36.3 million adjusting for VAT benefits in 2022.

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WHY DID THE COMPANY RAISE GUIDANCE?

Continued strong trading saw the leading brands outperform their respective markets prompting management to ‘moderately’ increase full-year adjusted EBITDA guidance.

Company-compiled consensus forecasts call for full-year EBITDA of £77.5 million. Chief executive Andy Hornby commented: ‘We are encouraged by the significant progress made in the first eight months of the year, delivering strong like-for-like sales growth despite the consumer backdrop. In light of the strong trading we are increasing our expectations for FY23 adjusted EBITDA.

‘We are making excellent progress on our medium-term plan and the board continues to actively explore strategic options to further accelerate margin accretion and deleveraging.’

ENHANCED DISCLOSURE

The company revealed divisional performance for the first time, following criticism from activist investors about a lack of transparency.

The analysis underlined the gulf in performance between the successful Wagamama, Brunning and Price pubs and Concessions businesses, and the Leisure brands which continue to struggle.

The Wagamama estate increased first-half adjusted EBITDA by 25% to £28.8 million.

Pubs adjusted EBITDA was 10% ahead at £8.2 million, while Concessions increased 150% to £2.7 million reflecting a strong recovery in passenger volumes at UK airports.

In contrast, the Leisure business recorded an EBITDA loss of £0.8 million compared with a profit of £5.1 million last year. The business traded below the market with year-to-date underlying sales falling 3%.

The group is therefore accelerating its rationalisation plan, aiming to shrink the trading estate from 116 sites to around 76 by the end of the current financial year rather than the 2024 financial year.

EXPERT VIEW

Shore Capital leisure analyst Gregg Johnson commented: ‘The first-half results demonstrated continued trading momentum, enhanced disclosure, and significant progress against the group's medium-term targets, which could see EBITDA build towards £130m or earnings per share of 7p.

‘We do not believe this is being reflected in the current valuation of 6 times EBITDA and see fair value closer to 70p/share, or 120p/share on delivery of the medium-term targets.’

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