“We still have serious concerns about the sustainability of the casual dining restaurants but, given the company will likely be able to continue expanding the better-quality divisions, we see fewer imminent negative catalysts,” the German bank said.
The upgrade came after a set of iffy interims on Friday and Berenberg admitted the casual dining market is “clearly still struggling”, as a result of which profitability will continue to come under pressure.
The Restaurant Group gave a divisional breakdown for the first time and Berenberg was surprised to see the pubs and concessions side of the business accounting for more profit than it had expected. Given the struggles of the casual dining market, this bodes well for the group’s shift in focus to concessions and pubs, with much of the growth in the pubs division coming from acquisitions.
“The plan to grow the concessions business is making good progress, with 17 sites set to be added this year. The company aims to open more sites next year and while it is only guiding to up to five additions at this stage we note this could rise over time. Meanwhile, with space for concessions in the UK ultimately limited, management is exploring the possibility of expanding overseas in the medium term,” Berenberg noted.
Shares in The Restaurant Group were down 0.8% at 290.4p; Berenberg has a price target of 270p, up from 250p previously.