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Wed 18th Feb 2015 - Douglas Jack raises target price for Restaurant Group
Douglas Jack raises target price for Restaurant Group: Numis Securities leisure analyst Douglas Jack has raised his target price for Restaurant Group shares by 100p to 860p to reflect strong prospects. He said: “Final results are due on Friday, 27 February. We forecast profit before tax being up 7% to £77.8m (consensus: £78.5m) which we view as a good result given that cinema market attendance fell 5% last year. We believe investor focus is on 2015E, for which we believe prospects are strong. Given this and the potential for forecast upgrades, we are raising our target price to 860p from 760p. Like-for-like sales rose 2.8% in 2014E against a backdrop of weak cinema attendance (-4.9%) and London airport passenger volumes increasing by 4.6%. We believe Concessions, Garfunkels and the pub restaurants outperformed over the full year. Trading should have remained positive. The Restaurant Group’s like-for-like sales rose 5% over the two weeks to 4 January, which included the first week of 2015E. We expect trading to have slowed from this level: cinema box office rose 6%, equivalent to admissions being up 3%, over the first six weekends of this year; and RTN will have been exposed to some of the snow and bad weather in the north. We estimate margins slipped by c.30bps in 2014E due to higher labour costs and higher pre-opening costs at the end of the year. We forecast margins being flat in 2015E, with food cost inflation being subdued and labour costs increasing. Upside to margins rests on the potential for higher like-for-like sales. 40 new outlets opened during 2014E. We forecast 45 new restaurants in 2015E, comprising: 17 Frankie & Benny’s, nine Coast to Coast, nine Chiquito, four pub restaurants and six Concessions. We believe the pick-up in Chiquito’s expansion rate reflects its new-design sites trading in line with Frankie & Benny’s; this is consistent with our estimate that 2013 and 2014 openings are already trading in line with the group average of £26,000 average weekly sales. We expect to hold our 2015E forecasts (PBT: £86.3m; consensus £88.2m), which anticipate 11% earnings growth, based on just 2.75% like-for-like sales, 5bps margin growth and no change in debt. Due to increasing consumer disposable income, easy cinema, weather and sports-related comps, and a strong cinema film slate, we believe there is upgrade risk later in 2015E.”

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