Stock Market News
Berenberg reiterates 'sell' for the Restaurant Group
Despite the Restaurant Group's recent trading update showing that its underlying performance is on the mend, analysts at Berenberg said the improvement was not significant enough to deliver notable growth in the second half of its trading year.
TRG's underlying earnings seemed to be boosted as a result of the annualisation of price reductions at Italian-American restaurant chain Frankie and Benny's, however, Berenberg said the smaller decline in like-for-like sales in recent weeks implied that the was too little to deliver the "notable [underlying] growth" moving forward that managament was banking on.
As well, in its most recent trading update, TRG increased guidance for new site openings in 2018.
Berenberg acknowledged that this will support financial performance, but the broker still thought that "weak underlying sales and substantial cost pressures" could have a "considerable impact" on profit generation.
TRG has not changed its guidance of £16m to 19m of external cost pressures in 2018, something it expects to mitigate roughly 50% of through leveraging purchasing scale, improved labour scheduling and overhead savings, and with underlying revenue set to decrease again this year, Berenberg added that cost inflation would have a considerable impact on profitability.
"Thus, we maintain our 'sell' recommendation, although we increase our price target to 250p," the broker concluded.
On Berenberg's new forecasts, the firm's LFL sales were set to fall by 0.7% in 2018, versus the 0.3% drop it had previously penciled in.
Combined with cost inflation, its EBIT margin was now seen shrinking to 7.7%.
TRG's underlying earnings seemed to be boosted as a result of the annualisation of price reductions at Italian-American restaurant chain Frankie and Benny's, however, Berenberg said the smaller decline in like-for-like sales in recent weeks implied that the was too little to deliver the "notable [underlying] growth" moving forward that managament was banking on.
As well, in its most recent trading update, TRG increased guidance for new site openings in 2018.
Berenberg acknowledged that this will support financial performance, but the broker still thought that "weak underlying sales and substantial cost pressures" could have a "considerable impact" on profit generation.
TRG has not changed its guidance of £16m to 19m of external cost pressures in 2018, something it expects to mitigate roughly 50% of through leveraging purchasing scale, improved labour scheduling and overhead savings, and with underlying revenue set to decrease again this year, Berenberg added that cost inflation would have a considerable impact on profitability.
"Thus, we maintain our 'sell' recommendation, although we increase our price target to 250p," the broker concluded.
On Berenberg's new forecasts, the firm's LFL sales were set to fall by 0.7% in 2018, versus the 0.3% drop it had previously penciled in.
Combined with cost inflation, its EBIT margin was now seen shrinking to 7.7%.
Related share prices |
---|
Restaurant Group (RTN) share price |
Stock News headlines are gathered from financial news sources around the web. Views and opinions on each item are from their respective authors and website. They are not opinions of LiveCharts.co.uk
Get a free widget for your website with our latest headlines.
You can now add our live prices and new headlines to your website.The news widget features quotes for Oil prices, spot Gold price and Indices plus a choice of news channel for healines.
Top Shares pages
- Share price quotes
- Share charts
- Share watch list
- Company Results Calendar
- Top Large UK Shares
- UK Market Sectors
- Stock market news
- Company news
- Share tips
- A-Z company search
More share features
POPULAR Share Prices
- Royal Mail share price
- Lloyds share price
- HSBC share price
- Barclays share price
- Prudential share price
- Santander share price
- NEXT share price
- Diageo share price
- BP share price
- Vodafone share price
- British Airways
- Centrica share price
- Tesco share price
- Taylor Wimpey Share Price
- National Grid
- GKP Share Price
- Marks and Spencer
- Rolls Royce
- Rio Tinto
- THG Share Price
- Aviva Share Price
- Boil Share price
- Easyjet Share Price
- Genedrive Share Price
- SSE Share Price
- IAG Share Price
- Boohoo share price
- HE1 share price
- AVCT share price
- BOOM share price