Restaurant Group and JD Wetherspoon

Friday, March 15, 2019 - 12:52

“The idea that Brexit could potentially be delayed has stirred up investor interest in UK stocks, as illustrated by the FTSE 250 rising 0.2% following the vote by MPs last night to ask the EU to push back the UK’s exit beyond the current 29 March departure date. The FTSE 100 was also in positive territory, rising 0.4% to 7,213.

“Housebuilders, supermarkets, tobacco firms and insurers all give weight to the broader FTSE 350 index, with small gains also registered across all of the other main stock market indices in mainland Europe,” says Russ Mould, Investment Director at AJ Bell.

Restaurant Group

“It is bizarre to see Restaurant Group flag a decline in profit, cash flow and like-for-like sales as ‘financial highlights’ in its full year results. To the company the figures may not be as bad as some had feared at the start of the year, but to an outsider they are a reminder of how hard the business has been trying to dig itself out of a hole.

“Fortunately there are some small signs of encouragement, hence why the share price has raced ahead on the news.

“The future now lies heavily on the success of Wagamama, particularly as Restaurant Group needs to justify the high price paid for the business. Recent trading has been good and there are numerous initiatives underway to drive sales including a ‘grab and go’ takeaway proposition.

“The main job is to accelerate growth across the group and to clean up the estate. Nearly a third of Frankie and Benny’s sites will be closed down in the future as they are deemed to be situated in ‘structurally unattractive locations’.

“Fortunately 41% of its leisure portfolio has a lease end or break option within the next five years, giving Restaurant Group the flexibility to action significant change in the near to mid-term.

“The stock market has brutally punished the business for its problems over the past three years, as reflected by the share price falling from 500p at the start of 2016 to a low of 123p last week.

“On the basis of today’s market reaction, the company appears to have offered enough evidence that it has a fighting chance of bouncing back.”

JD Wetherspoon

“It is well known that Wetherspoon’s chairman Tim Martin has strong views on Brexit but in his headline comments on the results investors may have wanted to see more than two out of seven lines devoted to the company’s first half performance. The remainder is entirely taken up with giving Martin’s perspective on the UK’s exit from the EU.

“Any lack of focus on the day job may be a particular concern given the significant margin pressure which hit profit in 2018. Martin has consistently been at odds with the City over the importance of margins, placing the emphasis on growing sales instead.

“In fairness he can claim vindication from the fact those sales have grown from just a few million pounds 30 years ago to well in excess of a billion pounds today and having delivered substantial capital growth and dividends over that time.

“The group has a clear strategy involving investment in its estate to ensure its pubs are places punters want to spend time in, while offering quick service and cheap pints and food.

“Recent trading has been robust, but the question of margins is not likely to go away given guidance is for cost pressures to continue in the second half of the year. Most of these are associated with staff, where a more competitive jobs market and introduction of the national living wage have affected the company.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.