RBC Capital starts Restaurant Group at 'outperform' on Wagamama deal

RBC Capital Markets initiated coverage of Restaurant Group at 'outperform' with a 200p price target on Thursday, as it said the company has been "transformed" by the acquisition of Wagamama, which completed at the end of November.

RBC said the Wagamama deal was a game changer and estimated that by 2021, it will account for 45% of the merged group's EBITDA.

The Canadian bank said the deal "materially improves" the growth profile, with over 80% of the combined group's EBITDA exposed to the growth segments of Wagamama, pubs & concessions.

"Previously, investors would have paid 14x price-to-earnings for a business where 50% of the EBITDA was exposed to the challenged leisure operations given 57% of these sites are retail based.

"However, post-acquisition, the stock trades at 9.6x 2020 estimated P/E with significantly enhanced growth prospects and a 4% yield."

RBC reckoned that the synergies and expertise in delivery will generate around £22m incremental EBITDA by 2021. It pointed to Wagamama's above-peer growth and the fact that it has sustained average like-for-like growth at 9.6% since FY15, outperforming the industry.

At 1345 GMT, the shares were up 0.3% at 152.10p.