Is recovery on the menu at Restaurant Group?
IT HAS been a tough six months for backers of The Restaurant Group in the run-up to and following its £550m acquisition of Wagamama.
Worries over the strain the deal may have placed on the balance sheet have driven the share price down 100p, or 46pc.
But as Mark Irvine-Fortescue at City broker Stifel pointed out, transformational bolt-ons such as Wagamama rarely come along at the perfect time, or, indeed, at the ideal price. He reckons the shares will recover, but this relies on a hiccup-free welding together of the popular noodle chain to TRG’s existing Frankie & Benny’s and Chiquito operation, as well as realising the planned synergies from the merger.
Irvine-Fortescue is a fan of the ‘oversold’ stock, which he reckons is worth 170p. Yesterday it was off another 2.1pc, or 2.5p, at 115.4p.
The Stifel abacus rattler, newly installed at the broker, took a closer look at TRG as part of a deep dive into the hospitality sector. He also likes pub groups
Fuller, Smith & Turner (off 0.9pc, or 10p, at 1135p) and Young & Co (down 2pc, or 32.5p, at 1610p), believing them to be more than ‘sleepy family businesses’.
‘With market caps similar to Marston’s, and a supportive industry backdrop, we believe they should be on more investors’ radar,’ the analyst said.
Wetherspoon, down 2pc, or 27p, at 1293p, is rated a ‘sell’ by IrvineFortescue, as it is ‘now trading at its peak valuation’.
Turning to the wider market, it was a fairly dour day as the
FTSE 100 succumbed to the same jitters that haunted Asia’s main markets earlier on – namely, fears over global growth with a soupcon of the Brexit collywobbles for good measure. The index of bluechip shares ended the session 30.01 points lower at 7177.58.
Goldman Sachs yesterday issued its update on its equity strategy. In this dense 16-pager, it pointed out that in the aftermath of the global financial crisis, returns had been ‘flat and skinny’. Its strategy team reckons the best shares to buy are those in businesses generating boat-loads of cash that are therefore able to make bumper dividend payments. A quick scan reveals publisher
Pearson (off 2.8pc, or 23.4p, at 825.8p) is top of the dividend charts along with Russia-focused
Evraz (up 0.1pc, or 0.4p, at 594.8p). Possibly offering a more sustainable income stream are the likes of Vodafone (down 1.8pc, or 2.58p, at 141.68p), BHP (up 1pc, or 12.4p, at 1772.6p), Aviva (up 0.2pc, or 0.9p, at 409p), HSBC (up 0.2pc, or 1.2p, at 614.2p) and British American Tobacco (off 0.4pc, or 13p, at 3073.5p). Elsewhere, shares in Wood
Group tumbled 7.6pc, or 41.6p, to 504p after the London arm of the American investment bank Jefferies downgraded stock in the oilfield services specialist to ‘underperform’, describing last week’s prelims as below par and ‘messy’.
There wasn’t too much cheer among the tiddlers, as kiosk and display group Space And People tumbled 17.2pc, or 2.5p, to 12p after it reduced its full-year dividend for 2018 by two-thirds on the back of disappointing results. Among the risers, Pantheon
Resources was a big climber after a test at its Alkaid well in Alaska recorded results ahead of expectations, sending shares gushing up 34.6pc, or 5.96p, to 23.2p. There was also good news as
Ovoca Bio confirmed its BP-101 treatment for hypoactive sexual desire disorder in premenopausal women had met its primary and secondary endpoints in a phase 3 clinical trial, with shares jumping 3.7pc, or 0.25p, to 7p in response.