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Morning Briefing for pub, restaurant and food wervice operators

Wed 13th Aug 2014 - Analyst – expect a strong First Half from The Restaurant Group
Analyst – expect a strong First Half from The Restaurant Group: Numis Securities leisure analyst Douglas Jack has issued a ‘Buy’ note on Restaurant Group shares with a price target of 725p ahead of its interim results on 29 August. Jack forecast “a strong First Half and an even stronger Second Half”. He said: “We are forecasting profit before tax to be up 10% to £33.0m (consensus: £32.9m), based on assumptions of 2.75% like-for-like sales, 17 new restaurant openings and 5bps EBIT margin growth. If the company achieves our H1 forecast, there should be increasing visibility on potential upgrades given that we are forecasting similar (11%) growth in H2, for which like-for-like sales comps are much easier (2% vs. H1’s 5%). Like-for-like sales rose 4% over the first 19 weeks to 11 May (versus. a comp of 4.5%) against a backdrop of a 2.3% decline in cinema admissions and a 4.7% increase in airport passengers during the first four months. In the last two months of H1, cinema admissions fell 19.7% and airport passenger numbers rose 4.1%. Our H1 forecast of 2.75% like-for-like sales growth assumes a tiny decline in Q2. Although the World Cup (ending on 13 July) and mediocre recent film releases are unlikely to have helped early H2, airport passenger volumes rose 2.5% in July and cinema attendance comps have eased. Against the ten-year moving average, 2013 cinema attendance rose 3.5% in Q1, rose 7.7% in Q2, fell 8.6% in Q3 and fell 4.9% in Q4. Amid no increase in promotional activity, we expect cost inflation to be similar to our 2.75% like-for-like sales forecast in H1. Encouragingly, wholesale food cost inflation fell to 0.0% in June versus +2.1% as at December and pump petrol prices are now down 5.5% year-on-year. Against this improving consumer and margin backdrop, we forecast margins rising 20bps in H2 (vs. 5bps in H1). 17 new outlets should have opened in H1 versus eight in H1 2013, resulting in 2014E expansion being less H2-weighted. We forecast 39 new openings this year (36-43 guidance), comprising 18 Frankie & Benny’s (average cash return: 40-50%), five Coast to Coast (30-35%), five pubs (20-40%), six Chiquito (30-35%) and five Concessions (circa 50%). There is a three-to-four year site pipeline. We expect to hold our Full Year forecasts (PBT: £80.5m / consensus: £81.0m), for which we believe like-for-like sales are the most likely source of possible future upgrades. Although the shares have recovered in recent weeks, our recommendation remains ‘Buy’, reflecting easy weather/sport-related comps in 2015E and a very strong cinema release schedule in both 2015E and 2016E.”


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