Restaurant Group (RTN) serves up a mixed platter of results

Pubs and Wagamama thrive while legacy businesses Chiquitos and Frankie & Benny’s struggle.

Article updated: 3 September 2019 11:00am Author: Helal Miah

  • Investors see positive signs from Wagamama and Pubs & Concessions businesses, yet concerns remain around its legacy Leisure businesses.
  • Shares drop nearly 10% in early trading as market reacts to outlook given by new CEO Andy Hornby.
  • As structural challenges are exacerbated by Brexit uncertainty, we will be putting our ‘Buy’ recommendation under review.

This morning’s trading update from the owner of many well-known dining out brands doesn’t seem to have pleased the market, as the shares fell nearly 10% in early trading. While there seems to be a positive report regarding the newly acquired Wagamama chain and its Pubs & Concessions businesses, management highlighted the ongoing challenges faced by its legacy Leisure businesses, which include Chiquitos and Frankie & Benny’s.

Given the much highlighted issues in the UK retail environment, this division has continued to see a small fall in like for like sales, but the market seems to be reacting more to the outlook for this sector. Management, including the new CEO Andy Hornby of HBOS fame (or infamy), has ‘taken a more cautious view on the medium term outlook’ and has therefore made a significant impairment charge of £100mn on these assets. This leaves a reported loss for the period of £87.7mn, a hefty sum for a company of this size.

Our view on Restaurant Group is under review

We had hoped and expected structural changes within the group would bear more fruit however, the structural challenges have not abated, if anything they are getting worse with the Brexit saga adding more fuel to the fire. After today’s update, we are placing our ‘Buy’ recommendation under review.
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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.