Analysts at Liberum Capital have reduced their price target for Restaurant Group PLC (LSE:RTN) to 70p from 100p but maintained a 'Buy' rating on the Wagamama to Frankie & Benny's casual dining chains operator in the wake of last week's interim results.
In a note to clients, the Liberum analysts said: "While Restaurant Group’s trading remains robust, inflationary cost pressures are expected to persist at an elevated rate for longer."
"To this end, it has locked in energy hedges and fixed interest rates. However, this comes at a higher cost, leading us to downgrade FY22E PBT by 15% and FY23E by 43%, excluding any benefit from the Government’s recently announced Energy Price Guarantee," they added.
The analysts said the earnings cuts flow through to their reduced target price which is based on 8.0 times full-year 2023 estimated EBITDA.
However, they concluded: "The stock is currently trading on 5.7x compared to a pre-covid historic average of 7.2x (range 4.3x – 11.5x) so at/near a trough multiple on what we believe are approaching trough earnings forecasts, which places the risk/reward to the upside."
Restaurant Group swung to an underlying profit in the first half as it saw its Wagamama chain outperform a challenging market and it said it has hedged all its energy costs out to the end of 2024.
An adjusted pre-tax profit of £10.2mln was reported for the 26 weeks ended July 3, 2022, compared to a loss of £19.9mln reported a year earlier. The company also reduced its statutory loss before tax to £28.5mln on an IFRS 16 basis compared to a loss of £57.6mln last time, which includes exceptional charges of £42.4mln, mostly non-cash impairment charges.
After utilities inflation of £2mln above previous guidance, management decided last month to fully hedge gas and electricity bills out to the end of the 2024 fiscal year, having been 50% hedged by volume last November and 75% as of this March.
Restaurant Group's total first-half sales jumped to £423.4mln from £216.8mln in 2021, while adjusted EBITDA was higher at £41.7mln on a pre IFRS 16 basis compared to £11.2mln in 2021.
In late afternoon trading on Monday, Restaurant Group shares were trading at 45.90p, down 1.3% on Friday's close.