The Restaurant Group plc (TRG) is engaged in the operation of restaurants and pub restaurants. The principle brands are Frankie & Benny’s, Chiquito, coast to Coast, Garfunkel’s, Home Counties Pub Restaurants and Brunning & Price. I have a holding in my income portfolio (epic code: RTN).
The Restaurant Group announced their interims today and they continue to perform. Revenue increased by 11.4% to £280m and on a like-for-like basis was up 5%. Operating profit increased by 14.2% to £31.1m and operating margins improved by 27 bps to 11.1%, which was due to a strong sales performance and tight cost controls.
Profit before tax increased by 15.2% to £30.0m and EPS increased by 15.8% to 11.14p. An interim dividend has been declared of 5.25p an increase of 16.7% and covered 2.1 times.
Free cash flow (FCF) was also strong at £27.9m compared to £21.4m last year. This FCF allows for maintenance capex, but not capex used to increased their capacity. If we allow for the increased capacity capex the FCF was £10.9m compared to £5.3m last year.
With such strong FCF, net debt has declined from £39.1m at the start of the year to £30.3m at 30 june 2013.
They mention that the second half has started well, with year to date total turnover up 10.5% and like-for-like sales up 4.25% and management are confident that the Group is well placed to deliver another year of good progress.
They state that they have a strong portfolio of complementary brands with significant future roll out potential, their best ever pipeline of new sites stretching into 2015 and beyond. They opened seven new sites in the first half, four between 30 June 2013 and today and expect to open a further 19 to 24 before the end of the year.
It is worth repeating here their strategic objectives "...to increase shareholder value and the strategy deployed to achieve this is to build a business capable of generating long-term sustainable and expanding cash flows. In pursuit of this we have focused our business on the growing casual eating-out market. We have targeted segments of this market which offer distinct barriers to entry, where we can be confident of delivering good growth in profits and cash flows and where there is considerable potential for high returns on investment..." They seem to be delivering on these objectives with high levels of operating margins, strong cash flow, ROE of 28% and a CAGR in returns to shareholders in the way of dividends and an increasing book value of 28.8% pa over the past 5 years.
The comforting profile of RTN is that their internal cash flows are sufficient to pay for their capex on both maintenance and expansion, the increasing dividend and have ~£5m available to reduce their borrowings. This is based on a forecast operating cash flow of £90m (LY £85m), capex of £55-60m (mentioned in the interim report) and dividends of £25m (2012 finals and 2013 interims).
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