Restaurant Group finals

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 final results today which were in line with expectations (see comments here).  Revenues were up 10% to £635m and like-for-like revenue was 2.8% ahead of the previous year. 

Group operating profit was £80.5m, up 7% and pre-tax profits up 7.4% to £78.1m, within the analysts expectations of £77.5-80.9m.  There was a further non-trading gain of £6.9m before tax, due to the disposal of its holding in the Living Ventures Group, the proceeds were distributed to shareholders as a special dividend of 3.45p in July 2014. 

EPS was up 7% to 29.92p and including the exceptional gain from the sale of its shares in the Living Ventures Group reported EPS was 33.35p. 

A final dividend of 9.3p was proposed, making a full year dividend of 15.4p, up 10% on last year. This is covered 1.94x by earnings.  Including the special dividend total dividends paid during the year were 18.85p.

Free cash flow (which excludes the sale of the associate) was substantially up on last year at £38.2m (2013: £21.8m), covering the normal dividend payments of £29.5m and £5.3m of purchased shares. Net debt decreased by £3.2m to £41.8m and represented gearing of 17.1%, covered 252% by their operating cash flow and is just 0.3x EBITDA.

RTN have a 3 year FCF return on capital employed of 12.4% compared to a weighted average cost of capital of 9.4%, remarkable for a restaurant chain that is increasing its estate at about 10% pa over the past 3 years.  Their current ROCE is a substantial 28%, produced by operating margins of 12.7% and turning their capital over 2.22x.

During the year 40 new sites were opened and management have said that 42- 50 new sites are expected for 2015.  Management have also stated that that there has been a "...Strong start to the new financial year with total sales up 9.5% and like-for-like sales up 2.5% for the 8 weeks to 22 February 2015..."

RTN is a quality business with good momentum, but is probably fully priced today at 738.5p representing 22x 2015 earnings and 6.1x net book value.