Canaccord raises Restaurant Group to 'buy' from 'hold'

Canaccord Genuity has raised its rating on Restaurant Group to ‘buy’ from ‘hold’ and lifted its target price to 550p from 276p.

The broker said the upgrade on the owner of Garfunkels follows the replacement of chief executive Danny Breithaupt with Andy McCue, former chief of Paddy Power. The ousting of the CEO comes after a string of profit wanrings and a share price collapse.

“New CEO Andy McCue was CEO of Paddy Power where he embedded a new growth strategy which delivered record revenues and profits, as well as playing a main role in the merger with Betfair,” Canaccord said.

Canaccord said the executive team has also been strengthened by the appointment of Barry Nightingale as chief financial officer and Spencer Ayers as new managing director for its Frankie & Benny’s business.

Looking ahead to the company’s strategic review on 26 August, Canaccord said: “We highlight a checklist of actions that investors should expect to read in the review: exit poorly performing sites, continue to develop the brand portfolio, reposition Frankie & Benny's, reduce and re-direct capex, improve digital marketing capability, reduce the overheads, review returns to shareholders including share buybacks.”

Canaccord said the problems Restaurant Group faces are “not unique” but believes that the business is “fixable”.

“Maturing brands inevitably require constant innovation and occasional reinvention and there are many positive case studies in the market that suggest it can be done.”

Shares fell 0.24% to 416.70p at 0949 BST on Monday.