$RTN.L – Restaurant Group – Post close update

RTN (Restaurant Group) operates over 500 restaurants and pub restaurants throughout the UK. Its principal trading brands are Frankie & Benny’s, Chiquito, Coast to Coast, a Pub restaurant business and a Concessions business which trades principally in major UK airports.

It released an RNS today (http://is.gd/lAi8JM) announcing that turnover was up 7.9% and like-for-like was up 1.5%. That sounds pretty good to me. The markets disagreed, and the shares have dropped nearly 15% in early trading. The company added caution, which is likely what spooked the market:

It has become apparent from much of the recent data from the retail sector and the wider economy that the trading environment for many consumer facing businesses has been tougher in recent months than it was earlier in 2015. This has caused like-for-like sales growth to trend lower and accordingly we are more cautious than previously on the outlook for 2016. A possible referendum on the UK’s continued membership of the European Union, National Living Wage implementation and global uncertainty are all additional issues that we are conscious of going into the new year.

These worries seem somewhat speculative to me, though. Why would a living wage be bad for sales, for example, and why should leaving the EU be necessarily construed as a disaster? When is anything ever certain like that?

My take on all this is that it’s a good company whose shares perhaps got a little toppy, and the update, combined with the diabolical state of the stock market right now, was the trigger that moderated the price. All the other disastrous stuff could still happen, of course, but when was that ever outside the realm of possibility anyway?

Analysts forecast dividends of 17.2p, which gives it a yield of 3.2%. That looks like a pretty good deal to me. RTN has enjoyed excellent returns on capital, operates with modest debt, and, according to Stockopedia, dividends have increased at a rate of 14% over the last few years.

I was a former shareholder in RTN. Although I don’t remember, offhand, what price I sold them at, it was likely to have been much lower. My sale was a mistake.

Personally, I’m not sure I would buy RTN, because I have a fair slice of TAST (Tasty), which is another restaurant chain. So I don’t want to be too top-heavy in that sector. But if I didn’t own own TAST, I would be severely tempted by RTN.

Conclusion: Top quality steady compounder now with an attractive yield. A portfolio of similar quality companies at similar valuations should do well.


About mcturra2000

Computer programmer living in Scotland.
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