Financial Trading Blog

Stock of the day 08/01/2015 – Restaurant Group PLC



A mixed 2014 culminated with a relatively strong end to the year for food chain-giant Restaurant Group PLC; a peek at the true extent of 2014’s successes and failures will be seen in its post-close trading update released on Friday.


The owner of high-street food chains that include Frankie & Benny’s, Chiquito and Garfunkel’s opened 2014 at £5.93 after 2013 had seen an uninterrupted rise from £3.92. Unfortunately for the company 2014 wasn’t as smooth sailing as the previous year, and after reaching its peak of £7.17 at the start of April, Restaurant Group struggled in spring, hitting its 2014 low of £5.53 in mid-June. After this slump share prices managed to stabilise between £6.30 and £6.80 with the company constantly hovering between these marks for the second half of the year. It opened 2015 at £6.52, and reached £6.80 on the day before the trading update.

Restaurant Group Plc Chart

Figures wise things are looking relatively positive for Restaurant Group, as its November trading statement revealed that year-on-year sales were up 10.3% with like-for-like sales up 3%. However sales since August had weakened, and if this trend continued it will be felt in the trading update tomorrow. The company did reiterate its full year guidance, so any deviance from this promise shown in the update will spook investors and cause problems for the company’s share prices.

Restaurant Group was fairly aggressive with its expansion in 2014, as it opened 24 new restaurants in the UK as of November, with the expectation of opening another 16 before the year closed. However, rather ominously for the statement tomorrow, the price of this expansion will be incurred in the final quarter of the year, and with costing pressure an issues mentioned in November, Restaurant Group could feel the squeeze from its every-growing limbs.

Analysts are mixed over the state of Restaurant Group as JP Morgan Chase & Co downgraded the stock to ‘overweight’, whilst Numis Securities said ‘buy’ and Deutsche Bank said ‘hold’. Overall analysts have an average rating of ‘hold’ with an average target price of £7.30. It seems the success of tomorrow’s statement depends on how well Restaurant Group has dealt with its slack sales in the fourth quarter and the price impact of its ambitious expansion.



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