It appears a strategy change, particularly at Frankie & Benny’s, is paying off for Restaurant Group (RTN) after its full year results beat expectations.
Shares in the company fattened 10.2% to 261.6p.
By introducing a £9.95 two-course fixed price menu and launching a new, cheaper menu at Frankie & Benny’s, volume momentum has improved.
The company flags it is taking volume share in a difficult sector. Market data recently revealed declining restaurant like-for-like sales in the industry over the last half year despite significant price hikes by its rivals.
Over the last few weeks, there has been a spate of bad news with the likes of Byron, Jamie’s Italian and Prezzo being forced to close several restaurants.
This could be beneficial for Restaurant Group by reducing competition for its high street chains including Frankie & Benny’s and Chiquito
SALES FALLING AMID PRICE CUTS
Restaurant Group’s like-for-like sales have fallen 3% in the year to 31 December, but broker Investec believes volumes over the last six months are ‘only down marginally’.
AJ Bell Investment Director Russ Mould says the results are not as bad as feared. He highlights the business is still profitable with improving free cash flow and a dividend.
‘Sales are still falling, but that’s because it has been forced to cut prices to stay relevant,’ comments Mould.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 21.4% to £95.1m. Investec had previously forecast a slighter lower figure of £93.4m.
The dividend has been kept at 17.4p, reflecting confidence in the board’s turnaround strategy. That means the shares currently yield 6.7% assuming the dividend is maintained at the same level next year.
WHAT DO OTHER ANALYSTS THINK?
Shore Capital’s Greg Johnson forecasts broadly flat like-for-like sales in 2018 with a 2% fall in sales expected in the first half.
‘Restaurant Group is a recovery play, in our view, but it's going to take longer as the market continues to soften,’ says Canaccord Genuity analyst Nigel Parson.
He reckons the dismal share price performance, down 22% between 1 January and last night’s market close, gives a ‘real buying opportunity for patient investors’, supported by a decent dividend yield.
‘The dividend yield should be regarded as a starter before the main course of recovery is served up,’ he adds.
